The euro was boosted by much better than expected French consumption data and new speculation of possible ECB rate hikes in 2006 but still failed to hold the 1.1900 figure in midday European session. French Consumption of Manufactured goods rose 1.1% in November versus expected gain of only 0.5%, suggesting that despite the recent political and economic problems within EU's second largest economy, consumer spending maybe starting to revive.  The data was actually all the more impressive given the fact that in November France was plagued by riots which put the whole country under curfew for several weeks. In other news, reports that ECB may be planning a 25 basis point rate hike during each of the  March and June meetings also helped lift the currency. The market is becoming convinced that the positive sentiment results flashed by both the ZEW and the IFO surveys indicate that German growth may ready to demonstrate consistent performance. Tonight the HWWI institute raised its 2006 growth forecast to 1.4% from 1.0% previously projected. The numbers however pale in comparison with US results. Today the US final GDP is expected to print 4.3% growth and yesterday's torrid pace of New Home sales, suggests that reports of the death of the housing bubble may be premature. Therefore with a perk-up in French spending notwithstanding, it is still unclear if EU could even match half of US' s projected growth next year.  With growth differentials still so far apart between the two largest economies of the world, the market may be underpricing the possibility of higher that 4.5% Fed fund rates next  year.  In the meantime these tight 1.1700-1.1900 ranges are likely to continue unless some unexpected geo-political events tilt the delicate balance between dollar bulls and dollar bears.

In Asian trade, yen lost further ground to the dollar as more evidence of deflation within the Japanese system pressured the single currency. As we reported yesterday the latest retail sales data from Japan in the form of Convenience Store Sales showed a substantial -- 4.0% year on year decline indicating that deflation is still very much present at the most basic economic level in Japan. Today, the BOJ released the notes of its meeting during which it was revealed that cabinet office representative was vehement in insisting that current liquidity targets remain  in place as deflationary tendencies have not been fully eradicated from the system. Whether these are simply the last vestiges of the deflationary scourge that has haunted the country for more than a decade remains to be been seen, but a more  restrictive monetary response from Japanese policy officials is unlikely to come anytime soon.

Boris Schlossberg is a Senior Currency Strategist at FXCM.