The euro recaptured the 1.2100 handle once again in early European trade buoyed by a healthy jump in Industrial Production and continued demand from Middle East accounts. EZ Industrial Production rose 1.3% vs. 1.0% expected to the highest level in 6 months. Surprisingly German data actually declined in November from the month prior, but the losses were more than offset by a jump in French Industrial activity along with increases from Italy, UK and Ireland. The news suggests that the business sector recovery is indeed broad based and should bode well for EZ growth in the upcoming quarter. The fact that EUR/USD refuses to give up the 1.2100 figure indicates that the currency is benefiting from reserve diversification with global investors now shifting part of their capital from dollars to euros. If the EU can keep its political problems at bay while producing steady, albeit unremarkable growth for the next two quarters the single currency may see further gains as worries about US structural imbalances resurface once again.

On that note, today's TICs data may set the tone of trading for the rest of the week. If the number meets the $80 Billion expectation  more that offsetting the -$65 Billion Trade Balance dollar worries may abate. However,  even a match of flows would be viewed negatively by the market as it would suggest that foreign capital flows - so critical to financing of US deficits - may be on the verge of contracting just at the moment when US needs them the most.

Finally, in a turn of events that always makes FX so interesting and unpredictable, the yen strengthened materially despite the fact that Nikkei suffered its third day of severe losses, dropping as much as 6% before rebounding slightly.  Such action would normally connote a weakness in the currency, but the massive margin calls in Japanese equity market created a need to repatriate funds from abroad by Japanese spec accounts needing to meet their capital requirements. Thus the rally in the yen.

Boris Schlossberg is a Senior Currency Strategist at FXCM.