Global Economy at Precarious Stage, EUR Shorts at New Record

Early indications are toward modest positive sentiment as markets open for the week but Fridays non-farm payrolls report leaves no doubt that a small shock could tip developed economies into recession. Last week, the yen was easily the best performer while GBP lagged. Ahead of Tuesdays RBA decision, the market and economists are evenly split on 25 or 50 basis points of cuts so some minor releases today could tip the balance. Our latest Intermarket Insights are due later tonight.

EUR opens the week slightly higher with the yen on the defensive but it is sure to be another volatile week as markets assess the damage from the ongoing sovereign crisis. On the weekend, Merkel continued to drive a hard line, saying that Europe needs reform not collective bonds.

The mood was sour on Friday after non-farm payrolls rose just 69K and April was revised 77K lower. The market is looking for a lifeline from politicians and central bankers. Speculation about further Fed action hurt the USD but action from other central banks is looking increasingly likely. In the week ahead, the market will be extra sensitive to hints about easing.

The final Greek polls ahead of the pre-election blackout show a race that is too close to call. New Democracy leads most pools by 1-2 points but one showed Syriza with a 6-point lead.

The Asia-Pacific calendar to begin the week focuses on Australia. At 0030 GMT, the TD Securities inflation expectations report for May will be released after Aprils relatively benign +1.9% reading. A lower number will weigh on AUD and give the RBA more room to cut rates on Tuesday. An hour later, Q1 Australian inventories and corporate operating profits are expected at +0.7% and -2.5%, respectively.

CFTC Commitments of Traders

Net short EUR 203K vs 195K prior (fresh record)

Net short JPY 11K vs 18K prior

Net long GBP 1.5K vs 11K prior

Net short CHF 31K vs 35K

Net short AUD 36K vs 17K prior

Net long CAD 34K vs 38K prior

Net short NZD 5K vs -1.5K prior

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-AB