While US economic data continues to show strength and the misery only grows in the Eurozone and elsewhere, a downside move unfolded today in the USDJPY that may have caught some traders off guard.

With US economic data surprising to the upside and European data disappointing, investors have returned to selling euro. Not only has tail risk in the Eurozone returned with the European Central Bank (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, further compounding the euro's problems.

See related: EUR/USD Faces Dangerous Double Whammy

In contrast, better-than-expected US data reinforces Fed Chairman Ben Bernanke's more relaxed outlook on the US 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 US data continues to improve. And today, data did just that, with weekly jobless claims in the US coming in at 336k compared to 334k the previous week.

These extremely low levels have pushed the less-volatile four-week moving average to its lowest level in more than five 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 US data disappointment was in existing home sales, which grew less than expected, but the upward revision to the prior month's report served to offset some of the pain.

What is interesting, however, is that USDJPY is trading sharply lower, and while risk aversion is contributing to the move, it could also be related to large-scale selling seen in EURJPY.

German Economy Is Starting to Crack

In contrast to the upbeat US data, 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 seen in the past six months, what is disconcerting is that the cracks in Germany’s economic armor 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 (let’s not forget about the still-unresolved Italian elections) makes the euro less attractive than the dollar, and this should continue to add pressure on the common currency.

Today’s 3 Best-Performing Currencies

However, not all currencies are performing poorly today, as the New Zealand dollar (NZD), British pound (GBP), and Australian dollar (AUD) are trading sharply higher against the greenback thanks to solid Q4 GDP growth in New Zealand, higher UK consumer spending, and stronger Chinese manufacturing activity. The collective strength in these three currencies indicates that investors still care about relative growth.

By Kathy Lien of BK Asset Management