Asian equity rally runs out of steam as traders turn cautious ahead of U.S. earnings

- Forex: The JPY selling paused briefly during the Asian session, with some commentators suggesting that the recent losses in the JPY were clearly overdone. The consensus remains that JPY selling will be the feature of the week in forex markets, with USD/JPY still trading above 119.48/53 cluster resistance. Note that positioning data shows speculators' net shorts on the JPY has now reached the highest level since Feb 27, the day of the recent sell-off (suggesting the JPY could benefit from short covering). The USD failed to get much of a lift from the retail sales data, with analysts saying that April's data will be needed to confirm the trend. Traders are willing to push the EUR higher, with the G7 statement being seen as a signal that a strong EUR is a great inflation-fighter for the euro zone. The consensus is that the market will likely test the all-time EUR/USD high without getting too much government intervention. Going forward, the Swiss franc may come under the spotlight after reports that Switzerland is considering plans for a special 10% tax rate for hedge fund managers. In Asian currencies, domestic funds in Taiwan continued to buy USD for overseas investments, pushing USD/TWD to the highest level since November 2. In fixed income news, Japanese 5yr bond yields hit a 2mnth high ahead of U.S. CPI data

- Equities: The Nikkei 225 opened sharply higher, but ran out of steam as traders took profits ahead of the U.S. earnings season. Gains on the Nikkei were led by exporters and shipping companies, with the weak JPY cited. The Kospi index rose to a new record high for the 10th consecutive session on gains in shares of Samsung and SK Networks, tracking earlier gains on the Nasdaq. The ASX 200 opened higher, but is currently lower and below the 6,200 level. Declines on the ASX 200 are being led by shares of Woolworths after its earnings came in line with expectations. Shares of BHP are also in negative territory on profit taking on copper. Chinese equities are higher for the 11th session out of the past 12 on gains in property related shares.

- Chinese think tank suggests Q1 Urban Fixed Asset Investment surged more than expected: (CH Q1 Urban Fixed Asset Investment +25.3% y/y - NDRC). China's urban fixed-asset investment is expected to grow by 23.0% this year, slower than the 24.5% expansion in 2006, the Chinese economic planning agency said at the start of April. Chinese equities largely ignored the report, as the Shenzen index continued to push higher.

- Commodities: Crude oil is little changed in Asian trading and holding below $64 on few catalysts. OPEC's President reiterated today that oil markets are adequately supplied. Spot Gold is extending gains into the Asian session. Spot gold is currently near 11-month highs and is trading just below the $694, after failing to hold above $695. Shanghai copper is trading lower on profit taking.