The ZEW survey of economic sentiment rose to 39.4 from the prior period reading of 38.6 but the results fell short of market expecetations of a rebound to 42.0 and  weighed on the EUR/USD which tumbled below the 1.2000 figure once again hitting a low of 1.1960 in early European trade. Investor confidence was dented by fears that the new coalition government in Germany will be slow to implement the necessary reforms. But the tone was affirmative overall, as econimci growth suppred by lower euro has pushed investor sentiment  higher for the third month in a row. German Producer Prices which rose to 4.9% also helped slow euro decline as market expectations of a possible ECB rate hike increased ratched up.

The real story of the night however occurred in the USD/JPY which appears to be headed straight for the 116.00 figure setting new yearly highs. Propelled by the relentless pressure from new carry trades and stubbornly high oil prices, the pair is also rising due to a massive imbalance in positioning. Our proprietary Speculative Sentiment Index registerd an unheard of reading of 6 yen longs for every dollar long yesterday as everyone and their mother tried to pick the top of the move. As long as positioning remains so heavily skewed to the yen side, the pair is unlikely to correct substantially. However, as the last of the diehard yen bulls get squeezed after the pair crosses the 116.00 barrier  and as worries over Wilma recede from the oil market possibly pushing crude below $60/bbl the yen may have a chance to rally. Nevertheless, all those looking for a turn must give the pair plenty of leeway as the uptrend in USD/JPY has not reached exhaustion just yet.

Boris Schlossberg is a Senior Currency Strategist at FXCM.