A cautious tone was notable in currency trading by Thursday with traders trying to understand whether the recent epiphany that slower degrees of contraction don't necessarily make for a recovery – at least not a sustained one. The disastrous midweek retail sale report was compounded by a rise in jobless claims today, which was enough to prod the dollar into action. Throw in growing concerns over ongoing fireworks at the ECB and its lack of policy unity among members and the forex market remains a hotbed of activity.

The bureau of labor statistics blamed much of a 32,000 rise in jobless claims through May 9 on the fact that Chrysler's bankruptcy over rated the number. The May 1 filing by the automaker saw 22 plants idled affecting up to 26,800 workers. Of course the potential trickle down effect throughout the supply and parts industry would only add to losses. But to issue a throw away comment that the figure is distorted appears wrong to us. Job losses are unemployment insurance claims and to even attempt to allay fears pinned on a Chapter 11 filing appears ludicrous. What are we saying here? Don't worry, normal service will be resumed after what should be a drive-through bankruptcy!

The fact is that the U.S. and global economy has had a massive shock and the result has been deleveraging. We don't know quite how much spending has gone for good, but we do know that the U.S. consumer at least is likely to save more and spend less. In aggregate that fact has driven one automaker into bankruptcy and a second one is not far behind. And so for a 15 th consecutive week unemployment insurance is being handed out to a record number of people, this week totaling 6.56 million.

Today the euro is trading at $1.3600 and traders can't make up their mind on direction as it flirts with unchanged on the day throughout the morning. The British pound, lacking any driving force after Wednesday's Bank of England Inflation Report is also largely unchanged against the dollar at $1.5155.

Traders continue to treat the euro with kid-gloves for the time being. The unity with which last week's rate cut and asset purchase program were delivered is grabbing everyone's attention thanks to the fact that it is rapidly falling apart. Some council members appear to be of the belief that rates could fall further and that asset purchases could be extended and expanded in scope. The relatively puny €60 billion of covered bonds that the ECB intends to buy pales into insignificance compared to British and American measures. Should investors continue to focus on the lack of roots displayed by the apparent green roots of recovery, the ECB will be shown up as offering too little too late to prevent an extended Eurozone recession. Traders will most likely aggressively pursue euro downside under such circumstances.

The Japanese yen has grabbed our attention of late, but quite why its resilience we're unsure. At first we wondered if the rise in bond yields accompanying the perceived global recovery was helping spur dollar sales in order to add to risk appetite in foreign assets. This is more of a dollar negative than a yen positive we admit, but it does somewhat account for an out performance of the yen relative to the dollar. But the subsequent decline in bond yields as the market rethinks its recovery theory has sent the yen higher still.

That leads us to wonder whether there is growing disdain of the dollar along the reasoning put forward in yesterday's FT editorial by David Walker, former Comptroller of the Currency, who raised age old questions about the growing likelihood of the loss of AAA-status for U.S. government debt. That's possible, but to assume that the yen might usurp the dollar of its crown as risk appetite fades fails to account for the recent epiphany that seeking refuge in the Japanese unit was a flawed game. The rise in the yen as global growth shrinks acts as a ligature around the nation's growth making export demand plummet faster than a diving swan.

However, it appears that more investors are heralding the advice of some larger banks who are advising investors to take a backseat from the rebound story and favor the yen for now. We're not sure the yen is any safer than the dollar at this juncture, but you can't argue with trade flows – and so we won't even try to.

Such a respite in the recovery story really ought to be negative to the commodity currencies. Until now, each pullback in the Aussie and Canadian dollars has been met with more investors wanting to get in. If the advice to take a rest from buying and instead favor the yen at a time when the Chinese stimulus impact might just be perceived to fade, then there could be a far better opportunity to buy the commodity dollars several weeks from now.