Retail is the theme of the day in the FX markets today as data from Tokyo to London flooded traders screens during the Asian and European sessions, but the end result was lots of heat and little light as pairs settled nearly  unchanged.  In Asia divergence between strong corporate demand and tepid consumer spending continued to manifest itself as Machine Tool Orders jumped 10% - far better than 5.0% the month prior but Convenience Store Sales contracted yet once again by -3.40%. This is the 17th consecutive month in a row that this report has registered a negative result and it casts doubt on the rosy expectations by some analysts that BOJ will remove its Zero Interest Rate Policy anytime soon. Despite Governor Fukui's upbeat remarks regarding 2006 growth the BOJ is highly unlikely to tighten monetary policy until authorities see clear, consistent evidence of robust consumer spending.

In Europe today, data also disappointed as French Consumer Spending dropped fully by -1% versus expectations of 0.3% gain. The region's second largest economy continued to struggle and remains the weakest link in the EZ recovery story. The EUR/USD however shrugged off the news  as news of Iran transferring its foreign reserve holdings to Asia kept the bid in the unit on fears of further escalation in geo-political tensions. Despite the turmoil or perhaps because of it, the EUR/USD has remained remarkably placid this week as traders weighed the dollar positive TICS report against the probability of more conflict in the Middle East and further Central Bank diversification into euros. At this point the market remains in a stalemate as neither side has been able to push the pair more than 100 points either way.

Finally in UK today Retail Sales jumped 4.0% on year over year basis versus expectation of only 3.7% gain. The results were welcome news to woe begotten  pound bulls, suggesting that BOE may not have to rush to lower rates in order stimulate demand. More importantly,  M4 continued to grow wildly, reaching 12% y/y rates which would likely restrain the BOE from dropping rates at a time when liquidity already appears to have reached inflationary growth levels.

Boris Schlossberg is a Senior Currency Strategist at FXCM.