US Dollar
It was another record setting day in the financial markets with both the EUR/USD and Dow Jones Industrial Average hitting new all-time highs. Unlike the Dow which pushed forward to close well above 13,000, the EUR/USD only broke its prior high by 3 pips before immediately backing off. There was a ton of US economic data released today, but the mixed message from the reports left the market with no choice but to focus on the unambiguously strong German business confidence number released earlier this morning. The divergent monetary policy and economic outlook of the US and the Eurozone has been the primary driver of the Euro's recent strength. Even though the dollar is not joining the rally in the Dow, currencies are playing a major role in boosting corporate profitability here in the US. Pepsico reported strong earnings today, partially due to foreign currency gains. Thanks to a weaker dollar, Boeing also reported a 27 percent increase in sales of commercial jets. Toyota overtook GM as the world's largest carmaker in the first quarter as the multi-decade lows in the Japanese Yen made conditions far more favorable for Toyota's car sale efforts than GM's. All of this has contributed to the sharp 3.4 percent surge in durable goods orders in the month of March. Even excluding transportation, orders were still up a better than expected 1.5 percent. Unfortunately weaker sales of new homes offset any positive undertones from this report. Originally predicted to rebound by 5.0 percent in March, sales only increased by 2.6 percent, on top of which a downward revision was reported the prior month. The latest existing and new home sales reports still indicate that the housing market is in trouble. The Beige Book report revealed a similar message. With the rare exception of Boston, all of the other Fed districts reported weaker real estate activity. Consumer spending is generally positive and the labor market remains tight, but the report's "modest or moderate" description of the expansion is more cautious than the "modest expansion" language that they used in the last report. Overall, the Fed has no reason to alter interest rates which leaves GDP as the next major event risk. In the meantime, the lack of any data indicates that we could see more sideways price action in the EURUSD and USDJPY over the next 24 hours.

Euro
Even though the EUR/USD hit a fresh all time high today, the currency pair's price action has been unimpressive and this is where the currency and stock market differ. Inflated stock prices do not hurt a company but an inflated currency price does hurt an economy. The higher the Euro rallies, the more cautious currency traders become even if recent economic data supports the strength of the currency. We are seeing this in both the Euro and British pound. Like the ZEW survey of analyst sentiment and the Belgium survey of business confidence, German business confidence also improved, driving the IFO survey up to 108.6 from 107.7. According to the IFO, robust global growth and strong domestic orders have offset any concerns about high oil prices, a strong Euro or the prospect of further interest rate hikes. These same factors should help to boost German consumer confidence and French business confidence, both of which are due out tomorrow. Stronger numbers will continue to keep the ECB on track to raise rates again in June.

British Pound
After perking back above the 2.0 mark, the British pound has been struggling to hold above that level. Economic data out of the UK has been solid, but the surprises have not been meaningful enough to push the GBP/USD to a new multi decade high. UK GDP printed at 0.7 percent in the first quarter, matching the rise in the fourth quarter. Unfortunately, the underlying weakness in the report was enough to hold back pound bulls. Construction sector growth was strong, but the service sector and industrial output weakened. The housing market has been the primary driver of growth and we expect this to continue to be reflected in incoming data. The only UK data left for release this week is the Nationwide House price report tomorrow. Expect house prices to continue to grow. The Bank of England is on track to raise interest rates in May which could keep the currency inflated until then.

Japanese Yen
Despite a much stronger than expected Japanese trade surplus and yesterday's sharp rise in Corporate Service prices, the Japanese Yen is weaker across the board. The basis for this weakness has been the surge in the Dow. Over the past few months, the Japanese Yen has been moving in lockstep with the Dow as traders sell the Yen to fund their stock purchases. Although this could continue for another night, we expect Japanese data to prevail as the primary driver of Yen fluctuations on Thursday, when we have no less than 8 pieces of key economic data due for release, including the Bank of Japan's rate decision and the release of their semi-annual economic outlook. We expect the weak Yen to have as beneficial impacts on the economy as it has for companies like Toyota.

Commodity Dollars (AUD, NZD, CAD)
The Commodity Currencies are stronger today as the market shifts back to risk seeking mode. Gold and oil prices are higher after the release of softer gasoline inventories and this has pushed the Canadian dollar to a 7 month high against the US dollar. To the surprise of the market, New Zealand raised interest rates again to 7.75 percent. Even though the market was looking for a rate hike, they did not expect one until June since the RBNZ just raised rates last month. However despite a 10.8 percent surge in the kiwi's value against the US dollar and a 13 percent surge against the Yen since the last rate decision, the central bank felt that domestic demand and the housing market was so robust that they needed to tighten the economy once again. There was no mention of further rate hikes in the accompanying text, which suggests that the RBNZ will pause. In other words, they wanted to just deliver two back to back rate hikes and be done with it. The potential end of the tightening cycle explains the NZD/USD's sharp reversal. Looking ahead, New Zealand still has the trade balance due for release. Canada will be releasing their average earnings and their monetary policy report tomorrow. The central bank already hinted that they are slightly hawkish, so there should be no surprises in the report.

John Kicklighter is a Currency Strategist at FXCM.