The EUR/USD catapulted higher in early European trade today as the IFO survey surprised to the upside registering the best readings in 5 years. The IFO rebounded from last months decline of 97.8 to 99.6 as stable oil prices and continued export growth infused European executives  with a degree of confidence not seen since 2000. According to Bloomberg, "The BGA exporters' lobby predicts Germany will export 780   billion euros ($938 billion) of goods this year, an increase of almost 7 percent from 2004."  The euro rose to 1.2020 off the initial euphoria from the report but then quickly backed off falling through 1.2000 once again. One of the key themes developing in the Euro-zone as we approach 2006 is the bifurcation of performance between Germany and France.  While the former is showing some promise and growth as political and economic reforms begin to take hold, the later appears to be mired in malaise as political upheaval and lackluster economic results plague the government in Paris.  Little wonder then that ECB feels so much pressure from EU's economic ministers to keep rates on hold for fear of snuffing out the regions delicate economic recovery. If the performance divide between Germany and France begins to widen, the euro, like a child torn between two friends may not be able to generate much momentum for a rally  and will simply trade reflexively off dollar sentiment.

Meanwhile, after a full week of vicious sell-offs the USD/JPY appears to have stabilized near the 116.00 level. Indeed for a while the European session saw the unusual case of both EUR/USD and USD/JPY rallying at the same time as speculative flow returned to the EUR/JPY cross which has bounced nearly 200 points from its low of 138.10 as a result of bargain hunting. As we noted in a note last night, "The (Japanese) government is completely unconcerned about yen weakness, but any whiff of yen strength and they start ringing the warning bells. Last night, (MoF's Vice Finance Minister) Hosokawa said that the yen's move was "relatively big," "excessive" and "undesirable."  He also added that even though the yen is in line with fundamentals, they will be watching the price action "with great attention."  Although they are far from considering intervention to support USDJPY, it is a clear illustration of where their alliance stands.

Boris Schlossberg is a Senior Currency Strategist at FXCM.