For the third time this month French data dragged the overall performance of EU economic reports as EU Industrial Orders dropped -0.5% against expectations of 0.7% rise.  While German orders rose an impressive 2.6% their strength was offset by marked declines in French production. This tale of two cities continues to unfold in the Eurozone and is likely to cause a deceleration in Q4 GDP growth. On the bright side, the region's number 3 economy - Italy saw both Business Confidence and Retail Sales rise above expectations as that country appears to regain some of its export competitiveness due to the lower euro.  As  a result of this mixed news the EUR/USD failed in its attempt to scale the 1.1850 barrier and retreated to 1.1825 level in quiet, thin pre holiday trading. On the agenda to day in the US session are the Personal Income and Personal Spending numbers which will be an important gauge for the market of the strength of the US economy.  If Personal Income shows continued growth, the Fed will have far less restrictions on its ability to raise rates beyond  market expectations of 4.5%. With Japanese markets closed Friday and US markets closed Monday, traders expect order flows to halt to a near standstill, therefore any significant deviations from the norm may cause extreme volatility in illiquid markets.

USD/JPY traded in a very narrow 117.60-117.30 range throughout most of the Asian session as economic data continued to show improvement in Japanese growth for Q4. Japan Trade Balance came in line with most estimates registering a reading 601 Billion yen with export growth aided by materially lower exchange rates, almost offsetting all of the jump in imports costs due to higher oil prices. Additionally both the Tertiary Activity and the All Industry index printed much better than consensus forecast at 1.2% and 0.9% gains respectively. The strong showing by the Japanese service sector suggests that export fueled growth is filtering throughout the Japanese economy which may lead to upward revisions of the country's GDP as 2006 progresses.  The pair however ignored most of the fundamental  data as thin trading conditions kept most of the market participants on the sidelines.

Boris Schlossberg is a Senior Currency Strategist at FXCM.