Yesterday's positive US Durable Goods results have given the dollar a bid tone in Asian and European sessions tonight and the unit gained against both euro and the yen despite better than expected eco data from both regions. In Japan the CPI numbers registered their second positive increase in a row with Tokyo CPI numbers jumping 0.5% - their largest gain since 1998. The data is welcome news to yen bulls arguing that the deflation era in Japan is over. However, Prime Minister Koizumi's comments that Japan remains in a mild deflationary environment tempered any enthusiasm for the currency. By midday Europe USD/JPY was trading at 116.85 up 40 points on the day as carry trade pressure especially ahead of FOMC meeting next week continued to push the pair higher.

Europe also produced positive eco surprises  with GFK German consumer confidence rising to 4.6 from 4.0 expected and EU monetary affairs commissioner Almunia saying that 2006 growth risks are to the upside. The ECB is now projecting possible 2.0% growth for this year, nearly double last year's anemic 1.1% GDP results. All of these developments bode well for euro bulls in the future but the unit is much more likely to trade off dollar news next week as we face a hailstorm of data which includes FOMC. ISM and NFP.

Meanwhile the action today is likely to center on the US GDP readings which are expected to print at 2.7% - the first sub 3% result since 2003. Additionally traders may key off New Home Sales data especially if it misses the already dampened expectations of 1230K units. In general the FX market is clearly coming to the conclusion that US growth is weakening. The 64 Trillion dollar question facing currency traders is just how severe will the slowdown be?

Boris Schlossberg is a Senior Currency Strategist at FXCM.