Yen And Swiss Franc Dive As Data Lifted Risk Appetite

Solid housing and employment data from US pushed S&P 500 to another 5 year high to close at 1480 overnight while DOW is heading closing to an important resistance level at 13661. Further fuel was given to Asian equities from China's economic data. Chinese Q4 GDP rose 7.9% qoq versus expectation of 7.8% qoq. Also, that's an improvement over Q3's 7.4% qoq and was the first pickup in two years.

The data is seen as a sign of strength that would carry on into Q1 and Q2 this year. The World Bank said earlier this week that China's growth is projected to be 8.4% in 2013. Other data released from China saw industrial production rose 10.3% yoy in December while retail sales rose 15.2%. Both beat expectations and were better than November's figures.

While the data boosted stocks, risk appetite is not clearly reflected in the forex markets. Canadian dollar and Australian dollar are stuck in tight range against dollar with a soft tone. The euro is also trapped in range against dollar below 1.34. Nonetheless, the trends are rather clear for the moment. Yen weakness remains dominant in the markets as USD/JPY and EUR/JPY breached 90 and 120 level respectively as recent rally resumed.

Even AUD/JPY managed to extend recent rise. Another clear trend is the euro's strength. EUR/CHF jumped further and broke through a key resistance level at 1.2472 decisively. Indeed, EUR/CHF even took out 1.25 very firmly. Strength in the common currency can also be found in EUR/GBP, and to a lesser extent in EUR/AUD.

Regarding the eurozone, IMF, Chief Lagarde hailed that a lot has been achieved by ECB but "firewalls have not yet proven operational, progress needs to be made on banking union and, clearly, continued if not further monetary easing will be appropriate in order to sustain demand." Lagarde emphasized that "we stopped the collapse, we should avoid the relapse and it’s not time to relax" and "removing uncertainty plays a key role in rejuvenating confidence."

In US, Dallas Fed Fisher said there is "some traction now in the economy." He said the US has a "2-plus-2 economy," with 2% inflation and slightly lower than 2% growth. But he also noted that he's concerned with the Fed's inflation target of 2% and 2.5% threshold might confuse the markets.

Meanwhile, he noted that "uncertainty stems from fiscal uncertainty" has dampened job creation. Atlanta Fed Lockhart said that by it's not likely there would be a clear indication of labor market improvement by mid-year and "bond purchasing will need to continue longer into the year."

On the data front, New Zealand CPI unexpectedly dropped -0.2% qoq in Q4 and that posted some pressure on the kiwi. US retail sales, Canada manufacturing shipments and US U of Michigan sentiment will be released later today.