After rallying sharply on the back of aggressive easing from the Bank of Japan (BoJ), the USD/JPY failed earlier at its first test of the key 100 level in what is likely to be a pause before further gains in the pair.

It was a relatively strong night for risk in the FX markets with GBPUSD retaking the 1.5300 level while AUDUSD barreled through 1.0450 in the wake of benign Chinese CPI data. The USDJPY, however, failed in its first attempt to take out the 100.00 level, and the obligatory profit taking then weighed on the EURUSD and EURJPY. EURUSD fell down to test the 1.3000 support level.

By mid-morning European dealing, prices stabilized and USDJPY found support at 99.00, while EURUSD slowly ground its way back towards 1.3050. With no major data on the economic calendar for today, most of the price action was driven by rhetoric, and this is likely a pause before further gains for USDJPY.

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In Asia, comments by Japanese Finance Minister Taro Aso that "Excessive yen gain has been corrected" sent USDJPY into a flutter as traders assumed that Japanese officials may have been trying to temper the rally, but Mr. Aso quickly changed his wording to "…is correcting," suggesting that authorities in Japan are not yet fully satisfied with the exchange level.

Just to reinforce the notion, Koichi Hamada, an economic adviser to Japanese Prime Minister Shinzo Abe, said that a level of 98.00-100.00 for USDJPY would be good for the economy. However, after failing to mount a run at 100.00, USDJPY remained unmoved by Mr. Hamada's dovish rhetoric.

In the UK, better-than-expected manufacturing production data helped to push GBPUSD through the 1.5300 level after it printed at 0.8% vs. 0.4% expected. This was the third upward surprise in the last four months of data and suggests that the UK manufacturing sector may be starting to recover.

On the other hand, UK trade data was horrid, as the deficit widened to -9.4B versus -8.7B projected, but the currency market shrugged off the news and focused on the better production numbers instead.

The Canadian dollar (CAD) held onto its gains after mixed housing market numbers. Housing starts increased more than expected, to 184K from 183.2K, but building permits dropped to 1.7% from 1.8%. The decline in Canadian job growth had only a temporary impact on the CAD, which is now close to recapturing all of last week's losses.

Lastly, as the dealing progressed in the European session, the AUDUSD caught a bid and rose through the 1.0450 level after CPI data from China proved to be relatively benign, allaying any fears that the People’s Bank of China (PBOC) will have to tighten monetary policy anytime soon.

Generally, the current risk-on environment appears to be supported by the belief that the two-pronged growth offensive from Asia and North America will be able to offset the lingering recession in the Eurozone.

See related: How to Read Risk-on/Risk-off Sentiment

With no data on the calendar in US, trading will likely be driven by equity flows and further comments from monetary officials (see below). The EURUSD remains relatively resilient, and if it can break through the key 1.3050 level and close the gap from the month prior, the momentum could carry it through the 1.3100 figure as the day progresses.

5 Fed Speeches of Interest to FX Traders

Fed Chairman Ben Bernanke spoke Monday night and did not mention the recent improvement in the labor market, but instead discussed exit strategies. He said, "The principle tool to tighten monetary policy will be interest rates and not asset sales, which are late in the tightening process."

Four Federal Reserve Presidents are scheduled to speak today with St. Louis Fed President James Bullard being the only Federal Open Market Committee (FOMC) voter in the group. As a noted hawk, he is typically more optimistic than some of his peers and did not sound overly concerned about last week’s abysmal non-farm payrolls (NFP) report.

Bullard spoke early this morning to NPR from Berlin and said the March payrolls number could be revised upwards. He also downplayed the labor participation rate, which fell to a 30-year low, saying that it has been falling since 2000.

Bullard still believes the unemployment rate will drop to 7% and sees more willingness within the FOMC to make small adjustments in bond purchases. While we agree that the March payrolls report could be revised, we doubt that it will be revised to the point where labor market concerns are eliminated. The dollar did not rally on Bullard's comments, suggesting that others investors agree with our skepticism.

Jeffrey Lacker (Richmond), Dennis Lockhart (Atlanta), and Narayana Kocherlakota (Minneapolis) are scheduled to speak later today, and while they are non-FOMC voters this year, it will still be interesting to see if their views changed after the weak jobs number.

If the NFIB small business optimism index can be a guide, the deterioration in labor market conditions is consistent with a pullback in business confidence, suggesting the phase of US economic outperformance may be over.

By Boris Schlossberg and Kathy Lien of BK Asset Management