One has to place side-by-side today’s apparently bullish European purchasing managers data with yesterday’s IMF growth revisions. On the one hand the Eurozone contracted at a slower pace in April with the Markit PMI composite index coming in at 40.5% versus 38.9% in March. On the other the IMF revised downwards 2009 growth from a January estimate of 0.5% to minus 1.3%. It reined in its growth forecast for 2010 from a return to 3% growth to just 1.9%. However, this year’s Eurozone’s performance is expected to show contraction of 4.2%, and today’s PMI is still consistent with a double-digit tumble in manufacturing output. Today’s gains in the euro were limited to an intraday peak at $1.3087 after the data and since then the euro looks heavy above $1.3000.

Other government data showed Europe’s industrial output tumbled in February by 34.3% versus one year ago. One also has to be cautious over the PMI data, which is a diffusion index. Its lesser contraction at an index reading below 50 still indicates a downward trajectory for services and manufacturing and is no guarantee of ongoing contraction for many months to come.

Asian stocks continued to rally overnight, which detracted from the recent run higher in the Japanese yen. The dollar improved to ¥98.12 while the euro rose to ¥128.06. Investors are clinging to signs of credit market improvement and a sense of stability for equity markets coupled with sporadic indications of data that are at least not worsening as reason to step up appetite for risk.

We’re seeing pullbacks in certain currencies being used as an opportunity to buy. Both the Aussie and Canadian dollars rose again today as a consensus emerges that counter-recessionary measures are undoing the rationale to avoid risk. Yesterday’s Australian inflation reading was low but its core measure indicated that fewer individual good’s prices are falling and so that measure, one favored by the RBA, remains high enough to provoke debate over whether the May meeting will produce an interest rate cut. Meanwhile support from Goldman Sachs for the government’s upgrade to China’s growth rate for this year and next is a plus for the export-reliant Australian dollar, which today buys 71.07 U.S. cents. The Canadians today follow suit to the U.S. and U.K. lead in adopting plans to print money and force down government bond prices, thus further thawing the credit market. The Canadian dollar today buys 81.45 U.S. cents. This adoption of quantitative easing will accelerate the day when global pressures dissipate and while the medicine might taste bitter, it is a necessary antidote. For Canada, the domestic fiscal situation is superior to that of at least the U.K. following yesterday’s budget developments, which means that its dollar has better prospects than the pound.

There remains a question ahead, however, for what this risk appetite improvement means for the relationship between the dollar and the euro. It’s unquestionable that the major driving forces mopping up the spilled milk remain the measures undertaken by the U.S. and the U.K. in terms of aggressive fiscal and monetary steps. The ‘lessening of the worsening’ means that investors are beginning to breathe easier, but we have to note that the European’s failure to adopt quantitative easing at an earlier stage rather than a later one will probably be a move that it regrets.

Already the Eurozone is suffering the second and third round effects of the American hangover far worse than the U.S. itself as consumption worldwide has dried up. Going forward, it’s easier to see the Eurozone catching a ride on the coattails of a bottom in the global economy than it is to see the Eurozone getting back to speed via its internal measures to address the problem. This is likely to become more apparent as the year wears on.

So while the riskier currency units might outpace the dollar, they will likely outperform versus the euro, which leaves the euro falling against the dollar proving that stable recovery remains elusive.