EUR Surges on Bailout, USD Tumbles on Poor Jobs, CFTC Shows Yen Shorts

European officials agreed to dispense bailout funds to Greece, sending EUR/USD above 1.46. The US dollar was broadly weaker after non-farm payrolls badly missed estimates, triggering more mentions of QE3. CFTC data shows yen positioning falling to net short.

The euro surged after the Troika of the EU, ECB and IMF said funds for Greece will likely be released in July. In a statement, they said GREEK FISCAL REFORMS MUST BE STEPPED UP, public sector workers must be laid off and taxes must be raised. The announcement confirmed yesterdays rumours, paves the way for upgraded aid and temporarily removes the uncertainty about Greece.

There was NO SILVER LINING in the non-farm payrolls report. The economy created 54K jobs compared to the 169K expected. The unemployment rate climbed to 9.1% compared to 8.9% expected. The duration of unemployment increased and birth-death adjustments added 206K jobs. Sentiment temporarily stabilized following the ISM services report (54.6 vs. 54.0 expected) but that proved to be short-lived. In the forex market, the bearishness didnt manifest itself into a broad risk off trade as it was mostly centralized to USD and neighbouring CAD.

Perhaps most interesting about late in the session was how stocks and bonds closed right at key levels. The S&P 500 fell 1% to 1300 and 10-year yields closed at 3.02%. Last Friday we noted that EUR/USD rebounded to close at the 55-dma and the pair went on to post huge gains this week, closing at 1.4641.

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EUR was easily the best performer on the week while CAD and NZD lagged. As bad as USD has fared recently, USD/CAD has now gained for five consecutive weeks. The caveat is that the cumulative rally has only been 340 pips with 200 of those coming in the first three days. Recently, CAD has been trading separately from commodities and more in step with USD.

WEEKLY CFTC DATA showed the euro ending four weeks of shrinking longs as the net position increased to +22K from +19K. The long position is likely to grow further because the data is only accounts up to the close on Tuesday. Yen positioning fell to -1.6K from +8K. Negative GBP positioning increased to -14K from -2K. Longs in AUD, CAD and CHF all increased while overall USD-negative positioning grew to $15.7B from $13.0B.

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