Germany remains the Eurozone’s lone hot spot for economic strength, while the Australian (AUD) and New Zealand (NZD) dollars have both rebounded from sharp recent losses.

German unemployment showed further signs of improvement, as Europe's largest economy was able to reduce the rolls by another -3K in March. This was slightly less than the -5K figure the market was expecting, but nonetheless continued the positive trend that has been in place for the past two months.

The gradual improvement in German labor conditions has been the primary reason why sentiment readings from both the business and the consumer sector have remained relatively buoyant despite the recessionary background elsewhere on the continent. Indeed, French consumer spending figures were woeful, printing at -0.8% versus -.0.1% expected.

It's becoming increasingly doubtful whether Germany alone can pull the Eurozone out of recession, even considering its impressive employment demand, which should still help to turn growth positive in Q1 of this year. With the political situation in Italy still unclear because the various parties have not begun negotiations, the markets remain wary, and the EURUSD sold off on the news after a dip in Eurozone equity indices revived risk-aversion flows.

See also: 3 Lingering Questions Weighing Down Major Currencies

Regardless, the pair remains above the 1.3100 level and has been able to maintain 1.3050 support for the past several days. If the political situation in Italy shows some potential for resolution, the pair could resume its relief rally, as the economic data—in Germany, at least—remains relatively supportive.

It was a slow, grinding night of trade in Europe, as markets continued to consolidate with little fresh news out of Italy and a relatively sparse economic calendar on deck. The EURUSD drifted lower to test the 1.3100 level, but commodity dollars, especially the Australian dollar (AUD) and New Zealand dollar (NZD) outperformed, putting in strong gains in Asia and maintaining them during the morning European dealing.

Commodity Dollars Go from Worst to First

In Australia, the Private Capex numbers printed worse than expected, coming in at -1.2% versus 1.1% eyed, but the market looked past the headline and focused on the future expenditure outlook, which was stronger than expected. That made the prospects for any immediate cuts by the Reserve Bank of Australia (RBA) unlikely and put the bid back in the Aussie.

The NZD also enjoyed a strong rally, as the NZDUSD pair broke above the 8300 level once again. New Zealand business confidence saw a massive jump to 39.4 from 22.7 and provided the market with a reason to buy.

The kiwi has been battered in the recent risk selloff, which no doubt cleared many of the long-term buyers, so today's rebound faced little selling from trapped longs. The outlook for New Zealand remains positive, and as long as the NZDUSD can hold above the 8200 level, it will likely maintain its uptrend.

On the data front, today’s North American session carries weekly jobless claims, Chicago PMI data, and GDP figures, which are unlikely to have much of an impact on trade unless they vary widely from the 0.5% GDP growth forecast.

The market may also be distorted by end-of-month flows, with some analysts predicting that there may be some demand for the EURUSD. The skews were already evident in European trade, where the EURGBP cross traveled more than 50 points since the start of trade despite no major news flow.

If there is no progress in Italy, we may be in for a tight consolidation session for the rest of the day, with world currency markets taking most of their cues from equities while risk currencies continue to hover just above their support levels.

By Boris Schlossberg of BK Asset Management