Far better than expected Japanese Q3 GDP data (+1.2% q/q) and reassurances from APEC members that they would keep spending until there was 'durable' economic growth spurred risk appetite this morning.  This pushed EUR/USD close to 1.500 in early European hours though as USD buyers emerged it dropped back to the 1.4870 area.  President Obama's visit to China has yet to bring any mention of China's effective USD peg which has underpinned the view that China will sidestep the issue until external demand becomes more robust; potentially in the second half of next year.  Gold prices have advanced further on the back of the soft USD.  The softer USD has also allowing cable to creep higher despite poor news from the UK housing market this morning. 

Ahead of his trip to China, Obama suggested that the issue of the Chinese exchange rate would form part of the agenda.  The priority of this issue was played down by China overnight.  China's Commerce Minister stated that it ''must provide a stable and predictable environment for our enterprises''.  This quashed hope that a quick appreciation of the CNY could be in store. Obama's visit to China will continue with a dinner with President Hu Jintao tonight but the market is increasingly resigned to the likelihood that China will avoid taking steps towards a revaluation of the CNY until the global recovery is firmly entrenched.

Japan's growth reached its highest levels in more than two years in Q3, expanding by a faster than anticipated 1.2% q/q.  Domestic demand, which has been boosted by fiscal hand-outs, contributed half of the increase.  While this pace of growth could stutter as stimulus is withdrawn, the strength of this report provides a strong counter argument to accusations that Japan could fall back into recession next year and instead provides a reassurance that Japan is benefitting from strengthening economic growth manifesting itself elsewhere in the Asian region.  As the risk trade gathered momentum the yen gave back the initial gains made on the GDP report but the JPY has retained a firm footing in European hours pushing higher vs the EUR, the USD and GBP.    

UK data this morning was limited to the release of the Nov survey from Rightmove which shows a 1.6% m/m fall. This is counter to the trend in recent house price data but reflects not only the seasonal lull in housing market activity but the delicate nature of the apparent recovery in this sector.   Cable edged higher in initial European hours reaching USD1.6749, but the emergence of USD buyers sent the pound back to USD1.6680.  Cable's weaker position has allow EUR/GBP to creep away from the technically important 0.8900/10 area up to the 0.8970 area.  Ahead of this week's release of the minutes of the Nov BoE meeting, the pound could be vulnerable to fears that the BoE remains open to another possible extension of QE. 

The release of Eurozone Oct CPI at -0.1% y/y is in line with expectations.  It follows this morning's statement from the ECB's Weber that price stability will remain the predominant goal for the ECB, and thus underpins the notion that ECB rates will remain on hold for many months to come. 

This afternoon US retail sales will provide the highlight.  The fact that risk appetite recovered after the recent rise in the US unemployment rate to 10.2% and the disappointing University of Michigan index on the implication that Fed rates will stay lower for longer suggests a weaker bias for the USD will be difficult to shake off whatever the outcome.