A quiet night of consolidative trading in the European session tonight with euro bouncing off the 1.2000 level on the back of in-line GDP data while yen remains stagnant off mixed results. Japanese Machine Orders, printed below consensus estimates, increasing only 2.3% versus 5.5% expected. On the other hand the Eco Watchers survey reading reached 55.7 the highest its been in 21 months. For yen bulls this is positive development as it shows that Japanese consumer confidence is now consistently above the 50 boom/bust level.  The Eco Watchers survey is our favorite gauge  of economic momentum in Japan because it represents the "man in the street" view of economic activity. Unfortunately up to now sentiment has not translated into action as Household Spending figures has not kept pace with rising consumer confidence readings. Nevertheless, this steady improvement bodes well for yen bulls who are betting that this Japanese recovery will produce sustained growth. 

In the Eurozone, the GDP numbers printed in line 0.6% and 1.6% respectively recording an increase in investment but subdued consumer spending.  No surprises there and most market analysts now expect the consumer component to contribute more to EZ growth as unemployment in the region recedes from post World War II highs. The euro slid nearly 180 points off its highs yesterday as better than expected US Trade data and a more dovish tone by ECB contributed to the correction but the pair held the 1.2000 level and has since recovered some its loss. As we noted yesterday -$64 Billion is hardly a major improvement in the balance of trade and still leaves the US at -$750 Billion annual run rate in the Trade Deficit. The more important number this week may be today's Retail Sales. If they rebound as expected dollar bulls may have enough ammunition to take out the 1.2000 barrier. However if the report disappoints it will only confirm the notion that US growth is about stall. Amidst much Central Bank speak yesterday, we think one comment was lost in the noise. Chicago Fed's Moskow stated that Fed funds are now at a neutral rate. This was the first clear signal from any US monetary officials that the tightening cycle may indeed be coming to a close. Mr. Moskow did state  that rates need to go higher to  fight inflation, but these words were simply there to give him cover. Today's PPI ex-energy is expected to show very muted 1.8% gain as ex-energy inflation remains tame especially with respect to wage growth. Therefore it appears that the Fed will now become far more sensitive to monthly economic numbers before considering additional hikes after the expected 25bp rise on January 31st.  Overall,  the action suggests that the 1.2000 level in the EUR/USD may be near term support, unless US growth suddenly picks up allowing Fed to go to 5% money.

Boris Schlossberg is a Senior Currency Strategist at FXCM.