A slow and protracted recovery or is the US economy on the cusp of a recession? The US economic naysayers have certainly been appeased by the string of less than convincing data recently. Friday’s trade was no exception with US Non-farm payrolls recording 125,000 job cuts in June reflecting the government census lay-offs. Although the headline figure was in-line with estimates, new jobs in the private sector were in focus with companies adding 83,000 short of the 110,000 expected. The official jobless rate fell from 9.7 in May to 9.5 percent surpassing estimates of a rise to 9.8 percent. The fall in the jobless rate is due to a decline in the number of job seekers by 652,000.

The risk adverse market environment has seen investors move to preservation of capital mode translating to the US 10 yr. bond yields slipping below 3 percent. Treasuries with a 2 yr. maturity also rallied forcing the corresponding yield to an all-time low of 0.5856 percent as investors pondered the ability for the US economy to avoid a double dip recession. In times of adversity, bond prices will move higher as investor move to protect capital, sending the corresponding yield lower.

Late last week also marked a fundamental shift of the US Dollar which lost ground against major counterparts in response to less than convincing economic data. We can pin point Thursday’s trade which resulted in a fundamental shift in appeal for the USD dollar as a safety-play. We saw softer manufacturing, housing data and weekly jobless claims. This would generally induce a dollar-positive scenario as investors move to perceived safety, instead what now appears to be the lesser of two evils winning out, with the Euro able to make solid ground.

Specifically to look at the EUR/USD pair - from a technical perspective we are seeing signs of a bullish break out, with the EUR/USD closing above the 55 day moving average on Friday, which suggest upward momentum.

However the USD still remains the preferred currency against higher yielding commodity currencies such as the Aussie dollar. At the time of writing the Aussie is teetering around the 84 US cent mark but appears to have reasonable support around these levels coinciding with some strength from local equities.

Market moving themes for the Aussie this week include the RBA interest rate decision which we expect will remain at 4.5 percent. The RBA also kept interest rates steady at 4.5 percent in June with the finer points of the minutes showing the RBA’s stance on interest rates is likely to remain neutral as they gauge the potential fallout from sovereign debt concerns in Europe. To add to the equation, we will now been watching closely any rhetoric in relation to the US economy going forward in conjunction with the banks view of Chinese demand going forward. Employment data to be released on Thursday is expected to show the Australian economy created 15,000 new jobs from 26,900 last month with the official jobless rate to remain at 5.2 percent.