The USD/JPY continued its massive correction as end of the year profit taking, carry trade liquidation and more positive economic data from Japan pushed the pair below the 116.00 level for the first time in nearly 8 weeks. Virtually all parabolic moves in the markets are followed by sudden and vicious corrections and USD/JPY is no exception.

It has dropped 500 points in 72 hours as every speculator bolted for the exits tripping multiple stops along the way. Yet while we are the first to claim that the FOMC statement which was the catalyst for this sell-off, contained a whiff of dovishness, hinting that US rate hikes may stop at 4.5%, this rapid drop in the USD/JPY may be overdone fro now. With yen having gained nearly 3% in 3 days, real money accounts such as Japanese importers of oil will find these exchange prices hard to resist. We already saw early evidence of that in the Asia session where importers bid the pair up the 117.70 level and with their purchase orders for critical commodities like oil not yet completed  for the calendar year, these bids may provide some support for the pair around these levels.

Meanwhile euro continues to tread water around the 1.2000 figure as French data continues to weigh on the overall economic performance of the region. Tonight's lackluster French NFP figures which printed 0.0% vs. 0.1% growth expected confirm the fact that French economy continues to struggle despite the stimulative effects of a lower euro.  French problems, which include the need for much better social integration of the country's Arabic and African immigrants and more creative economic initiates from the ossified government in Paris, may be a gargantuan stumbling block to any concerted EZ growth in 2006. As such we continue to believe that if the euro were to rally it would only do so due to its status as the primary anti-dollar instrument rather than on any merits of its own.

Boris Schlossberg is a Senior Currency Strategist at FXCM.