The USD/JPY rallied to 116.80 in Asian trade buoyed by demand from real money accounts such as  Japanese importers as well as a growing realization  by the specs that the pair may have made a double bottom near the 116 area. Although Japanese authorities are making strong attempts at instilling fiscal discipline by passing a federal budget under 80 trillion yen for the first time in 8 years,  the USD/JPY shrugged off the positive yen news. Instead the pair was far more affected by the report that Convenience store sales printed a disappointing -4.0% decline on year over year basis indicating that persistent deflation remains embedded in the Japanese economy. Because Convenience stores are the primary means of retail in Japan, tonight's news may be a significant signal regarding the true state of consumer demand in Japan. If deflationary pressures still remain in the Japanese system then market's assumption about the end of the carry trade may be much too premature and USD/JPY could see more upside ahead.

In Europe the news was depressingly familiar with Italian Industrial Orders and Sales  missing the mark. Orders contracted -1.1% versus expectations of a gain 1.2% while Sales dropped -0.6%  against consensus estimate of a 0.6% gain. Perhaps the best  that can be said about the data is that it is highly outdated coming as it does from the October period. However, if other EU members aside from Germany do not pick up the pace of economic growth, the euro will not be able to generate any momentum off its own fundamentals and will simply trade off dollar sentiment, providing little confidence to spec accounts looking to place term bets into 2006.

Boris Schlossberg is a Senior Currency Strategist at FXCM.