Bank Woes and Jobs Report Hits Euro & Latest Trades

The euro fell nearly a cent to close out the week after a dismal non-farm payrolls report and concerns about Italian banks. CHF and JPY led as the S&P 500 fell 0.7% to 1344. Fridays CFTC report showed increasing USD shorts. Access to our Friday trades below.

NFP was shockingly soft at 18K versus the 105K consensus. The unemployment rate unexpectedly ticked up to 9.2% as the household survey was even softer. Revisions compounded the negative news as April was lowered to +217k from +232k and May was reduced to +25k from +54k. Government payrolls fell 39K in the eighth consecutive month of double-digit losses. There was no silver lining in the report and nearly 44% of the unemployed have been off work for more than a year, increasing the risk that unemployment is crossing the threshold from a cyclical problem to a structural one.

Euro trading was a mess on Friday. EUR initially fell on talk that Italian banks will need to raise billions in fresh capital. EUR/USD hit a low of 1.4205 but dollar selling (mostly USD/JPY) sparked a wicked short-covering rally that pushed the pair nearly 150 pips higher in the 30 minutes following NFP. The gains did not last as EUR/USD eventually slipped back to close at 1.4264.

Commodity currencies were generally resilient to the risk off theme. Canada demonstrated why as it added 28.4K jobs, more than the US, which has 10x the population. Of the gains, 21K were part time and 7K full time. The pace of wage growth slipped to 2.0%, the lowest since Dec. 2010. Even though wage pressures are soft, we continue to believe the market is underpricing the risk of a surprise hike on July 19 or of a very hawkish statement.

On the week, EUR was the worst performer while JPY was the strongest. Nothing jumps out at us on the weekly charts as most moves were relatively small.

The weekly CFTC report showed EUR longs increasing by one-third to 43.2K. JPY net longs edged higher and net USD shorts increased 20%. The speculative community appears to be losing its appetite for CHF as the francs long position was nearly cut in half to 5.3K contracts. Long positing increased in commodity currencies, led by a 38% increase in AUD.

Click here for DIRECT ACCESS to our Friday Trades: http://ashraflaidi.com/products/sub01/access/?a=453

Click here if you are NOT a subscriber: http://ashraflaidi.com/products/sub01/