Yet another mind numbingly boring night in the FX market as absence of news and lack of data has lead to a very quiet session with EUR/USD tracing out a very narrow range of 1.2250-1.2270. The only release out of the Euro-zone concerned the better than expected improvement in the Italian Trade Balance which rose to €129.0M  up from a deficit of -€822.0M the period prior. It appears that even Italy which has been the weakest of the "Big 3" European economies is finally benefitting form the lower euro which is helping all European goods and services to become more productive.

In Japan tonight, Merchandise Trade Balance slipped by -19% from 2005 but the decline was not due the lack of export growth but rather much higher import costs as energy prices skyrocketed sending imports up by staggering 27.3% from the year earlier. Japanese Corporate Service prices declined -0.4% vs. -0.2% expected contributing to the idea that vestiges of deflation remain within the system. Tomorrow Tokyo and all-Japan CPI data may provide a better read on true status of deflation within the country. Overnight, statement from Japan's ruling LDP party that BOJ should hold off on any decisions regarding changes in the Zero Interest Rate Policy until August suggests that fiscal authorities will fight tooth and nail any attempt to tighten Japanese monetary policy in the first half of the year. All of these dynamics leads us to conclude that the yen remains vulnerable to the carry especially with US rates expected to widen to at least 450 basis point differential by end of this month.

On the calendar ahead, US Durable Goods expected to rise 0.9% against a drop of -0.6% last month. This number will be quite important to both camps. If the bounce happens as anticipated, the bulls will be able to claim that US growth continues to maintain pace and the Fed may go to 5% money before concluding its tightening cycle.  Should the number miss however, it will be yet another data point in a growing array of evidence that US economy is hitting a wall. While European trading was dull, US session may yet prove to volatile.

Boris Schlossberg is a Senior Currency Strategist at FXCM.