With U.S. economic data surprising to the upside and European data disappointing, investors have returned to selling euros. Not only has tail risk in the Eurozone returned with the ECB threatening to pull support from Cyprus if an agreement is not reached by Monday but the outlook for growth has taken a turn for the worse, compounding the euro’s problems. In contrast, better than expected U.S. data reinforces Bernanke’s more relaxed outlook on the U.S. economy. In yesterday’s press conference, Bernanke did not sound overly concerned about the negative risks posed by the sequester or Cyprus, as long as data continues to improve and they have with weekly jobless claims in the U.S. coming in at 336k compared to 334k the previous week. These extremely low levels have pushed the less volatile 4 week moving average to its lowest level in more than 5 years. The Philadelphia Fed survey also rose back into positive territory (2.0 in March versus -12.5 in February) while leading indicators rose 0.5%. The only disappointment was in existing home sales, which grew less than expected but the upward revision to the prior month’s report offset some of the pain.

What is interesting however is that USD/JPY is trading sharply lower and while risk aversion is contributing to the move, it could be related more to large scale EUR/JPY selling.

In contrast to the U.S., Eurozone manufacturing and service sector activity contracted at a faster pace in the month of March with the Eurozone PMI Composite index dropping to 46.5 from 47.9. While this is not the lowest reading that we have seen in the past 6 months, what is disconcerting is that the cracks in Germany are beginning to show. The Eurozone’s largest economy is no longer able to provide umbrella support for the rest of the region and is now weakening alongside France, Italy and Spain. The deteriorating growth outlook and risks posed by Cyprus and Italy (lets not forget about the unresolved elections) makes the euro less attractive than the dollar and should continue to add pressure on the currency.

However not all currencies are performing poorly today as the NZD, GBP and AUD are trading sharply higher against the greenback thanks to solid Q4 GDP growth in New Zealand, higher U.K. consumer spending and stronger Chinese manufacturing activity – this indicates investors still care about relative growth.

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