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- Canadian Dollar Breaks Higher as Economy Unexpectedly Added on Jobs in April
- British Pound Makes Headway vs. US Dollar, Japanese Yen, But Otherwise Remains Weak
- Euro Pushes Above Multiple Levels of Resistance - Euro-zone Q1 GDP Expected to Fall For Fourth Straight Quarter

US Dollar, Japanese Yen Take a Bearish Turn as NFPs Fall Less Than Expected, Boost Risk Appetite
As we said on Thursday night, US dollar and Japanese yen declines were likely to continue following the release of the official results of the US government's stress test of the 19 largest financial institutions. This was indeed the case, as the DXY index broke below major support at the confluence of the 200 SMA and a rising trendline at 83.25, while EUR/JPY broke above the 200 SMA at 132.48 and GBP/JPY just barely closed above 150.00. While some of this had to do with lingering sentiment from the day before, US economic news helped as well.

According to the Labor Department, US non-farm payrolls fell by 539,000 in April - less than the expected drop of 600,000 - which brought the unemployment rate up to 8.9 percent. Looking at this in a historical context, these are severe numbers, as the jobless rate is at its highest level since 1983 and payrolls have contracted for 16 consecutive months, bringing the total number of job losses up to 5.738 million since the beginning of 2008. That said, the severity of these consistent declines has lessened in recent months, and after four months of losses greater than 600,000, April's number offers a modest reprieve from the labor report's oppressive pace, offering a sense of cautious optimism.

That said, the steady accumulation of job losses does not bode well for economic growth going forward and indicates that the unemployment rate will continue to climb. At the same time, initial estimates of Q1 GDP for the US showed a 2.2 percent jump in personal consumption, after two quarters of contraction, suggesting that aggressive discounting by retailers has been able to counter the impact of falling incomes, to a certain degree. In coming months, it will be important to see if the rising optimism amongst consumers - which has been focused more on the economic outlook than current conditions - can remain robust even if growth doesn't bounce back in the second half of the year.

Looking ahead to next Monday, Federal Reserve Chairman Ben Bernanke will speak at 19:30 ET on the stress tests, and regardless of the subject, his comments tend to be highly market-moving. As a result, words that reiterate the positive sentiment gleaned from the official report has the potential to provide yet another boost to risk appetite while leading US dollar and Japanese yen losses to be exacerbated.

Related Article: US Unemployment Hits A 25 Year High, But Monthly NFP Losses Slowing

Canadian Dollar Breaks Higher as Economy Unexpectedly Added on Jobs in April
The Canadian dollar rally resumed on Friday, helping USD/CAD to make a clean break below Fibonacci support at 1.1660 and close just below 1.1500 as Canadian data proved to be surprisingly strong. The net employment change had been expected to fall by 50,000 during April, which would've marked the sixth straight month of job losses. However, the Canadian economy actually added on 35,900 jobs during the month, keeping the unemployment rate at 8.0 percent. The increase was due to a surge in self-employment, as positions rose by 37,000, but since these sorts of jobs are known to be relatively unstable, the news isn't a reliable sign of recovery. Regardless, the economies associated with the commodity dollars - Canada, Australian, and New Zealand - have all fared the global economic slowdown much better than nations like the US, Euro-zone, and UK, making the Canadian dollar, Australian dollar, and New Zealand dollar attractive from a macroeconomic perspective.

British Pound Makes Headway vs. US Dollar, Japanese Yen, But Otherwise Remains Weak
The British pound remained under pressure versus most of the majors, but made headway against the big losers - the US dollar and Japanese yen - taking GBP/USD above 1.5155/65 and GBP/JPY above 150.00. That said, the fundamental view remain highly bearish, especially after the Bank of England surprisingly announced an expansion of their quantitative easing (QE) program on Thursday. Indeed, the Monetary Policy Committee agreed to increase its purchases of government and corporate debt by 50 billion pounds to a total of125 billion pounds, suggesting the BOE believes that the economic outlook has worsened as the world economy remains in deep recession. The MPC's policy statement also noted that the economic outlook was dominated by two countervailing forces, as growth takes a hit from the inside and out due to a rise in private saving and weak global demand. This moves leaves downside risks open for the British pound, as the QE program should bring down broad interest rates. However, GBP/USD and GBP/JPY price action may be determined more by risk trends rather than fundamentals, so those looking to play the macro card with the currency may want to trade it against some of the other majors.

Euro Pushes Above Multiple Levels of Resistance - Euro-zone Q1 GDP Expected to Fall For Fourth Straight Quarter
The euro broke above multiple levels of resistance against the US dollar on Friday, clearing hurdles at 1.3435 (recent highs), 1.3486 (the 200 SMA), and the psychologically important 1.3500 mark. The move was generally triggered by massive US dollar selling and increased risk appetite, as evidenced by the 2.41% gain in the S&P 500, but nevertheless opens the door to major gains assuming that EUR/USD will be able to make it above the next level of resistance at the March high of 1.3740. Euro strength is interesting in light of the European Central Bank's decision to cut rates on Thursday to 1.00 percent, and ECB President Jean-Claude Trichet's announcement that the central bank will buy 60 billion euros worth of covered bonds since they indicate a major turning point in policy.

Nevertheless, the euro could encounter some bearish news next week as Q1 GDP is forecasted to contract for the fourth straight quarter, this time at a rate of -2.0 percent, compared to -1.6 percent in Q4 2008, while the year-over-year rate could fall by a whopping 4.1 percent. Such data would indicate that the Euro-zone's recession deepened into the start of 2009, and would only raise the odds that the European Central Bank will consider cutting rates further or will need to take more drastic steps than their current credit easing plan.

Related Articles: Euro Strength Suggested by Candlestick Patterns, Euro Forecast Bullish As Crowd Sells Into Post-ECB Rally

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Written by: Terri Belkas, Currency Strategist for DailyFX.com
E-mail: tbelkas@dailyfx.com