The USD/JPY rebounded back above the 116.00 level in an unusually volatile Asian session, marked by low volumes and lack of economic news. In absence of fresh economic data, the pair traded off technical considerations with bids at 115.50 level coming from option traders defending those barriers before rumored expiration at the New York cut of 15:00 GMT.  Furthermore, Japanese Finance Minister Sadakazu Tanigaki once again noted that officials are watching the FX movements carefully in a clear hint to the markets that the yen rally which produced a 500 point decline in the pair last week may have moved to far, too fast. With a sparse calendar this week which includes only the Merchandise Trade Balance and the Tertiary Activity reports, the trading in the yen may continue to be characterized by further end of year squaring and bouts of short covering, thought as we noted in our weekly, " The MOF rhetoric may produce some sort of short term bounce in USD/JPY, but last week's damage looks to be too severe and the pair may see more downside action ahead before finding a true bottom."

In the European session the action was decidedly more lackluster as the euro held on to the 1.2000 figure despite weaker than expected Industrial Production data.  In keeping with our bifurcation if performance theme, the German numbers continued to improve but the overall results were dragged down by French and Italian readings. As we noted on Friday, the French economy continues to act as an albatross on the neck of the EZ growth. The euro however shrugged off the news buoyed by hawkish comments form Otmar Issing who in his finest "Bundesbanker" fashion stated that ECB can't ignore money and credit growth signals suggesting that the Central Bank may be preparing for additional rate hikes in 2006.

Boris Schlossberg is a Senior Currency Strategist at FXCM.