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23:50 ET FX Action: Cable has bounced in Asia having found solid support ahead of 1.6320 through Thursday's trading session and in early Asian dealings. Reports of North Asian reserve manager demand for both EUR and GBP has helped the bounce in Cable though gains have stalled ahead of 1.6400, with highs limited to 1.6388 so far. The recent pullback in sterling has only served to confirm the current 1.6200-1.6600 range that continues to contain the currency with some further risk to the downside and stops expected on a break under 1.6300-20. UK's Darling, in an interview in the Independent today, warns bankers against backsliding into their old ways and adopting the bonus culture. He also said the FSA will take a more proactive approach to target pay hikes and bonuses that reward short-term profits. In EUR-GBP, interest has been subdued in Asia with the cross trading a tight range of 0.8526-44 since the Tokyo open, with the cross consolidating after Thursday's sell-off from highs of 0.8630.

23:30 ET FX Action: EUR-USD has bounced in Asia, but fell short of testing 1.4000, with traders reporting that Asian reserve managers were behind the gains in the currency today. Similarly, Asian sovereign names were reportedly behind the EUR-USD bid ahead of 1.4000 in NY trading, before the sell-off to 1.3928 in late NY following the weak close in the U.S. stock market. Despite the bounce in the EUR-USD this session, the currency pair has fallen short of testing 1.4000 with a high of 1.3995 so far. There is talk of option strikes rolling off around 1.4000 later today that is helping to contain price action. Offers are eyed not only ahead of 1.4000, but at 1.4030 and 1.4080 as well. Bids are reported at 1.3930. A number of factors have weighed on the EUR including the downgrade of Ireland's debt by Moody's and the EU data showing unemployment at a ten-year high. For all the price gyrations however, the rejection of 1.4200 this week only confirms the recent 1.3800-1.4200 trading range with risk for a move back toward the base of the range in the sessions ahead.

23:13 ET NYMEX crude remains under $67 in Asian trading, dropping 33 cents to $66.40 for the August crude contract after losing $2.58 in NY on Thursday. Fear of falling demand, in the wake sizable drop in U.S. non-farm payrolls and the rise in European unemployment to a 10-year high, is weighing on oil. An interesting development is the news that the spike above $73 in Asia on Wednesday has been tied to a "rogue" trader out of London which reportedly cost PVM Oil futures Ltd. almost $10 mln. August Comex gold futures have bounced in Asian trading, up $2.30 to $933.30 after falling $10.30 in NY on Thursday. Traders are seeing increased risk for gold to slide under $900 in coming sessions and possibly back toward $870 and the lows seen in April. Copper is losing ground in Shanghai, with demand concerns also weighing on the metal after weak EU and U.S. employment data. Ongoing indications that metal demand from China will ease in the second half of the year is also seen weighing on prices.

22:49 ET FX Action: AUD-USD has been underpinned by some positive data this morning, as well as short-covering coupled with a reaction to EUR and GBP gains after reserve managers bought those currencies. In the positive data releases, the Performance of Service Index for June rose 10.3 pts to 50.2 pts with the result over 50.0 signifying the first expansion in the service sector in 15 months. Adding to the positive data was the vehicle sales for June with sales up 36.3% m/m in original terms and the third highest volume on record, with gains of 11.8% seasonally adjusted though annual sales are still down 3.5%. AUD-USD traded to a low of 0.7903 in early Sydney before bouncing to a 0.7967. 0.7970/80 and 0.8000 remain resistance for the AUD-USD and risk remains for the AUD-USD to fall back to the base of the recent range at 0.7800, particularly in the wake of the recent topside failure. Still weighing on AUD-USD are weaker commodities with gold, oil and copper all declining on Thursday. The CRB index is now at the lowest level since the 27th of May, when AUD traded as low as 0.77744. Given the correlation to commodity prices, this fall in the CRB increases downside risk for AUD.

22:29 ET FX Action: USD-JPY is consolidating after the slide Thursday, with the currency pair continuing to find good support around 95.70 in today's session that has helped propel USD-JPY to session highs of 96.01. Traders report that interest is muted with no sign of spot interest from the hybrid bond desks. Dealers also note that with USD-JPY still within the recent 95-97 range, that there is no compelling interest to buy or sell the currency at these levels from local entities. Exporter interest still remains at higher levels toward 97.00 or higher. Similarly, importers and investors are looking for dips closer to 95.00. Tokyo fixing interest was reported to be mixed today. Sellers are eyed at 96.20 and 96.40 with bids at 95.30/40 on any further dip in USD-JPY. EUR-JPY found good support at 133.58 this morning, before bouncing to 134.33 after real money sales were seen in the cross much earlier this morning. Offers are tipped at 134.50, 135.50 and 136.00 on the cross, and buying interest remains at 133.50 on dips with Japanese investor interest still eyed on the cross on any dip under 133.00 where life companies have been solid buyers in recent weeks.

22:18 ET FX Action: NZD-USD has had an underlying bid in Asian trading, finding good support at 0.6264 in late NY, early Wellington trading. NZD-USD has bounced back to highs of 0.6303, with a correction expected in the wake of the steep slide over the last three days. Helping propel the bounce is some positive tertiary data that has been released in New Zealand this morning with Auckland's Barfoot and Thompson reporting that Auckland home sales rose in June on signs that the real estate market is stabilizing. Sales rose by 5.8% m/m and 55% y/y to 861 homes. Home prices are still weak however, falling 2.3% during the month. New Zealand new car registrations rose for the second successive month in June, increasing 8% m/m but remained down 36% y/y. NZ used car registrations rose 4% for the month, but was down 23% y/y. The NZ government also reported an improvement in the fiscal position with a deficit of NZ$7.16 bln in the 11 months to May, and 14% better than had been forecast. All the news is not positive however, with concerns remaining over the weak dairy sector and expectations that Fonterra will have to cut the payout. Also, a survey of business conditions for June from the Manufacturers and Exporters Association shows sales declined by 27% in May, after a 29% drop in April, and business confidence fell to -58% from -50%. 0.6310 and 0.6350 are now resistance levels on any bounce in Kiwi. Key support is in the 0.6240-55, a break of which targets 0.6150.

21:31 ET Japan Fin Min Yosano the state of the economy will determine exit strategies, noting that "What the Bank of Japan and the Japanese government are doing is in response to an unprecedented situation," and adding that "We can debate exit strategies but deciding them is another matter." Yosano also announced that Rintaro Tamaki will replace Naoyuki Shinohara as Japan's key currency official.

21:31 ET Japan weighted-average real Fx rate slipped by -1.3% m/m in June, and has pulled back by over 10% since January, when it had climbed to its strongest in 8 years on unwinding of carry trade amid the flight to safety. Weighted-average real Fx rate is computed by BoJ against a basket of trading partner currencies, adjusted for relative movements in their price deflator. After easing in July-07 to its most competitive in over 20 years since the Plaza Accord in 1985, the index had strengthened by over 40% through Jan-09 - - with 33% of that coming amid the financial turbulence during the five months beginning last Sept. The softening since January should provide some relief to Japanese companies, after the squeeze from the strengthened JPY at the turn of the year had aggravated the drag from collapsing global demand.

21:26 ET The Australian June Performance of Service Index rose 10.3 pts to 50.2 pts, for the first expansion in the sector in 15 months, up form 39.9 points in May. The government cash payments and fall in interest rates was seen helping to bolster the service sector. The data comes after the PMI earlier this week which rose 0.9 pts to 38.4 but still remains under 50.0, reflecting a contraction. Other recent data has been mixed with gains in May retail sales, and housing fiance, but declines in the HIA new home sales and a steep 12.5% fall in building approvals. The RBA credit aggregates also continues to show weakness, particularly with a sharp contraction in business loans. The RBA is expected to keep rates steady next week at 3 percent.

21:17 ET Japan Econ Min Hayashi says the U.S. economy has not bottomed out yet, adding, "We must watch this trend carefully." Hayashi warned yesterday that the U.S. economy remains the largest external threat for Japan's recovery. Hayashi is the news economic and fiscal policy minister, taking some of the responsibilities of Finance Minister Yosano. Hayashi also stated yesterday that the Japanese economy has bottomed out but it is still very low.

21:07 ET FX Action: FXCM reports retail FX traders are short EUR with 53% of open positions short compared to 51% short last week according to the latest FXCM data released Thursday, July 2nd. Overall outstanding positions rose by 5.3% with long positions rising 13.3% in the last week and short positions dropping 1.5% in the last week. USD-CAD longs are 51% of open positions rising from 47% of open positions last week. Longs rose by 11.6% in the last week with shorts have declined by 3.8%. Outstanding positions have risen by 3.8% in the last week. 75% of USD-CHF open interest is long, up from 50% longs from last week, with long positions risen by 77.3% over the last week, and shorts falling by 31.7% in the last week. Overall, outstanding positions rose by 22% during the week. In USD-JPY, 63% of positions are long compared to 61% last week, with longs positions rising by 4.4% in the last week and shorts rising by 10.1% in the last week. Overall, outstanding positions have risen by 6.1% in the last week. GBP-USD positioning shows that 56% of traders are long unchanged from last week. Long positions rose 28.7% in the last week and shorts declined by 9.4% last week, Overall outstanding positions were 7.2% higher in the last week. Distribution in open positions for the EUR, GBP, CHF, JPY and CAD shows 43% of all positions in EUR unchanged from last week, 26% are in sterling unchanged from last week, 11% in CAD, also unchanged from last week, 14% in USD-JPY unchanged from last week and 6% in USD-CHF, unchanged from last week.

21:03 ET Fed custody holdings hit new record highs the week ending July 1st with treasuries and agency debt held on behalf of foreign official and international accounts rising $27.903 bln in the latest week to $2.781 tln. Average treasury holdings are at $1.960 tln compared to $1.374 tln a year ago while agency holdings are at $806 bln compared to $971 bln a year ago. Agency holdings have declined back to the lows this year at $806 bln which a low level last seen the week of April 22nd which was also the lowest level since the week of November 21st 2007 as investors continue to sell off holdings in Fannie Mae and Freddie Mac. The sharp rise in custody holdings continues to show strong demand from foreign central banks for dollar holdings in reserves. Earlier this week, the IMF reported that USD holdings as a proportion of global reserves rose to 65% in Q1 2009, up from 64% in Q4 2008.

16:55 ET N.Y. FX Summary (July 2) The dollar chopped around following the worse than forecast NFP outcome in early N.Y. trade, initially rallying, then slipping lower. USD-JPY remained soft along with an early downtick in U.S. equity futures, while EUR-USD was largely unchanged, as traders listened in on ECB Trichet's post-announcement press conference. There was nothing surprising from the ECB, and the backdrop of thin, pre-holiday trade, and sharply lower U.S. equities kept the greenback and the yen supported for the remainder of the session. The dollar bloc meanwhile, faded along with commodities and the risk backdrop. The slightly better than expected weekly jobless claims, and May factory data were largely overlooked, as the sharp drop in NFP took the spotlight into the Independence Day holiday weekend. See FX Trader page.

15:09 ET Canadian Market Summary: Canadas continued to grind higher, keying off a disappointing U.S. employment report, along with pressure on equity and commodity markets. The market playing catch-up with Treasuries in early trading, with yields pushing higher at the long-end in reaction to the spike in ISM prices on Wednesday. However, yields rotated lower following the U.S. jobs data. The 10-year yield reversed 8 bps from earlier session highs, hitting a four week low at 3.34%, before bouncing 1.5 bps into the close to 3.35%. USD-CAD rallied above 1.1600 along with broader gains for the greenback, pressure on equities and crude oil. And the S&P/TSX Composite retreated, down 90 points late in the session. See our summary.

14:53 ET Treasury Closing Summary: Payrolls Friday punctuated a turbulent shortened week in the bond market, as yields reversed even lower following the worse than expected result. Stocks took a steep dive amid the disappointment, though the dollar index benefited from the data-induced turmoil and cloudier economic outlook. The drop in jobless claims and bounce in factory orders were largely shrugged off compared to the dominant employment report and stock market swing. The front-end set the pace early, pushing the curve to steepen, while even next week's supply announcement failed to halt the bulls. See our summary.

14:01 ET U.S. Hours-Worked Still Falling Fast: The market always focuses on the payroll print, and the 467k June decline was certainly disappointing enough. Yet, the real story was a further drop in the workweek to a new cyclical-low of 33.0 hours, with an associated sharp 0.8% drop in June hours-worked that was led by big declines of 1.2% for factories, 1.7% for construction, and 2.2% for mining. Though a turn in the inventory trajectory in Q3 with a positive GDP figure still appears likely, the hours-worked data continue to resist the turn. See our report.

13:35 ET Treasury Action: supply, supply, supply is the focal point next week amid an otherwise light data and Fedspeak calendar. The Treasury could sell over $170 bln in bills, notes, bonds, and TIPS next week, assuming a $35 bln 4-week bill auction (details announced Monday). For the first time ever, the debt managers will conduct 4 coupon/TIPS offerings. Despite the advent of this massive supply, yields are still sharply lower as stocks are down over 2%. Monday's ISM Non-Manufacturing index highlights the data calendar. The rest of the week is virtually empty until Friday when trade, import and export prices, and consumer sentiment will be released. Other factors that will influence trading are the start of earnings season, and the G8 meeting.

13:31 ET Canadian bonds: Canadas have maintained the slow grind higher, keying off the disappointing U.S. employment report, including a sharp fall in hours worked, along with weakness in equity and commodity markets. There have been few strong domestic leads, although strike activity has remained a headwind for the economy, including planned protest by Vale workers in Canada to a cut in employment benefits. And the Globe and Mail has warned of a tepid real estate recovery, referencing industry experts. More upbeat, Ford posted a 25% y/y sales jump in June. The 10-year yield has probed below Tuesday's low at 3.355%, now trading 1 bp lower on the day. And the September CGB has probed above Tuesday's peak at 121.40, suggesting scope for a brief push toward the May 26 high at 122.03 before peaking. See our CGB technicals.

13:08 ET Bank of Canada research warned that debt purchases might distort the capital markets, according to Bloomberg, offering one reason why the BoC has held off from quantitative easing. The research argued that "central banks' purchases of private assets could distort the capital and credit allocation process and induce lobbies from the private sector to purchase assets." It noted that the success of QE would be hard to measure and that buying non-govenment securities may also risk the bank's independence.

12:21 ET Fedspeak will be at low ebb after the holiday weekend with only one speaker slated to make an appearance next week, Governor Duke. The moderate permanent voter and former ABA chairwoman will be speaking before the FDIC 2009 conference on minority lending at 9 ET on Thursday, July 9, though the exact topic of her speech has not yet been revealed.

11:51 ET U.S. 10-year technicals: after allowing for today's spike higher following weak payrolls that cracked the Jun 29 high at 116-23 and may challenge the May 29 high at 117-04, a sell-the-fact reaction from 116-23 to 117-04 (vs 116-31+ high) should trigger a bearish reversal. A sustained violation of 115-21+ will renew the longer term downtrend, but it will take a drop beneath the Jun 25 low at 114-26+ to confirm that a bearish bias has indeed resumed. See 10-year note futures.

11:29 ET European Fixed Income Summary: European debt futures are up on the day with Bunds outperforming after today's ECB announcement, which confirmed that rates are on hold for a protracted period. Gilts underperformance was supported by the 30-year Gilt auction (which sent Gilts sharply lower), BoEspeak and credit conditions survey (see below). Today's European calendar had eurozone May producer prices, which dropped to -5.8% y/y (median -5.6% y/y) from -4.6% y/y in the previous month. Meanwhile, the unemployment rate jumped to 9.5% (median 9.3%) In the U.K., the BoE Q2 Credit Conditions Survey showed increased availability of corporate credit, but rising spreads, meanwhile the construction PMI fell back to 44.5 in June, from 45.9. Elsewhere, the Riksbank unexpectedly cut the repo rate by 25bp to 0.25% (median was for a steady 0.50% rate) and the SNB suggested it may broaden its range of collaterals. As of 15:23GMT the September 10-year Bund future is up 72 ticks on the day at 121.64, while the corresponding Gilt future is up 26 ticks at 117.64. In the cash market the 10-year Bund yield is down 8 bp at 3.33% and the 10-year Gilt yield is down 3 bp at 3.74%. By comparison stock markets are lower, with the DAX down 3.28% and the FTSE 100 down 2.34% on the day as of 15:09GMT. See our full summary.

11:09 ET Treasury announced a $65 bln 3-pronged package of coupons, as well as an $8 bln 10-year TIPS. The Treasury will sell $35 bln in 3-year notes on Tuesday, $19 bln in 9-year 10-month notes on Wednesday, and $11 bln in 29-year 10-month bonds on Thursday. All of those are unchanged from June levels. The TIPS, to be auctioned Monday, are also unchanged from their January level, the last time a new issue was sold. Additionally, the Treasury will sell $63 bln in 3- and 6-month bills on Monday, that's up $1 bln from this week's amount, with the increase in the 6-month tranche, bringing it to $31 bln. Next week's auctions could total $171 bln, including the 3- and 6-month bills, and assuming a $35 bln 4-week bill sale. Treasury yields are still sharply lower on the day, focused more on the weak employment data and looking to cover positions into the long weekend. After the well subscribed coupon auctions a couple of weeks ago, it looks as though the Street is confident this paper can be absorbed with little difficulty.

10:48 ET Treasury Option Action: more bearish "call" selling has been reported against the grain of the strong rally in Treasury futures and steep slump in stocks. It would appear that those on the options side are still intent on gearing up for a classic post-payrolls whipsaw, though bond futures are right back at highs. Sources cite a sale of 2k in Aug 119 "calls" on 10s and a 3k offer of Aug 117 "calls" back-to-back, with the Sep 10s last up 15-ticks at 116-24 and cash T-note yield down to lows near 3.48%.

10:34 ET Treasury announces more supply today, including 3- and 10-year notes, and a 30-year bond, as well as 10-year TIPS. But, unless there is a huge upward surprise, it doesn't appear as though the bond market is too perturbed currently. Indeed, yields continue to head lower. We expect no change to the sizes of the nominal coupons relative to June, which totaled $65 bln with $35 bln in new 3-year notes, $19 bln in reopened 10s, and $11 bln in reopened 30s. We also expect $8 bln in TIPS, also an unchanged level relative to last new issue from January. However, risk is to the upside given the ongoing shortfall in receipts. Also there has been some talk that the debt managers will bump up the TIPS, still trying to build activity in these securities.

10:26 ET The U.S. factory orders headline gain of 1.2% for May slightly beat assumptions due to some price-led firmness for nondurables, alongside downward revisions for most of the shipments, inventories, orders, and equipment data from the last durable goods report. We saw a 0.7% May gain in nondurable shipments and orders, but a downward April revision to -0.2% (was 0.4%), alongside a surprisingly-firm flat reading for May nondurable inventories that followed an unrevised 1.1% April decline. The revisions sustained the same profile from the durables report of surprising strength in the overall orders and the capital equipment figures alongside as-expected weakness for shipments and inventories, though just "less so." Today's factory goods data are consistent with a 15% rate of decline for the equipment and software component in the Q2 GDP report, following prior rates of 33.7% in Q1 and 28.1% in Q4. The 0.6% factory durable inventory drop is in line with a 1.1% May business inventory decline, following 1.1%-1.4% monthly drops since the start of the year. We peg the Q2 real inventory subtraction from GDP at $37 bln that should leave a hefty $124 bln inventory liquidation rate, following the $61 bln subtraction in Q1.

10:23 ET FX Action: Sovereigns names supported AUD-USD under 0.7950 in good size, but a good amount of bids have already been taken out and the pair is still struggling to rally, suggesting that further downside tests could be on the cards. The pair was hit hard after the U.S. NFP, with a Swiss name continuing to offload Aussie longs after it was noted as an active seller during the European morning. Options support kept the pair within close proximity to 0.8000 in to the U.S. release, but the weight of dollar buying and the uptick in risk aversion has opened the floodgates on the downside. Technical watchers argue for a much deeper correction as fresh shorts were establish through 0.7970 and 0.7950, but EUR-USD's price action around 1.4000 will be pivotal as will the Asian equity market performance. A resumption in safe haven activity could trigger further selling, which will see support at 0.7930 and 0.7915 come in play. Note, however, that previous moves in to this area have seen good demand from real money names.

10:12 ET Canadian bonds: Yields remain capped despite the firmer than expected U.S. factory data, with the market still keying off the disappointing U.S. employment report, along with pressure on equity and commodity markets. Also of note, Lear's bankruptcy filing has extended pressure on Ontario's manufacturing sector -- the auto-parts supplier operates three plants in the province. The 10-year yield has steadied around 3.37%, holding above Tuesday's low at 3.355%. The 2s10s spread has widened out 4 bps to +220 bps, with the front-end anchored by both the jobs data and recent comments from central bank policymakers. Meanwhile, the 10-year spread versus Treasuries has continued to hover around -15 bps, little changed from Tuesday's Canadian market close.

10:06 ET Treasury Action: yields held near lows following the healthy rebound in factory orders, while stocks remained in a bearish mode down over 2.0%. The payrolls report is still dominating the markets, though fixed income traders may begin to square up and bank some gains in front of the Treasury's supply announcement later this afternoon before the early close. The 10-year yield is holding near 3.51% after falling from 3.57% pre-payrolls levels, while the 2s-10s spread is steady near the steeper +251 bp area.

10:05 ET FX Action: The dollar showed little reaction to the better factory orders data, and remains mixed following the earlier payroll report. Wall Street remains lower on the session, keep EUR-USD and USD-JPY under pressure. N.Y. dealers will likely begin to close up shop after the London close, as the market looks ahead to a long weekend.

10:02 ET U.S. factory orders jumped 1.2% in May from a revised 0.5% increase in April (was 0.7%). That's better than expected. The 1.8% jump in durable orders in the advance report was not revised. Excluding transportation, orders were up 0.8% versus a -0.2% previously (revised from 0.1%). Nondefense capital goods orders excluding aircraft surged 4.7%. Shipments fell 0.9%. Inventories were down 0.6%. The inventory-shipment ratio was steady at 1.45. The data are important for economists as they fine tune GDP forecasts, but aren't likely to be market movers.

09:45 ET White House's Romer said we'll do "whatever it takes" to get the economy back on track, referring to the possibility of a second stimulus package, in a CNBC interview. She characterized the jobs report as "disappointing," and not surprisingly tried to spin it as positively as she could, but could only suggest there is a lot of volatility in the numbers. She avoided answering the question that is on the markets' mind today, which is whether the sour employment report will be the catalyst for another stimulus package.

09:38 ET U.S. Factory Goods Preview: May factory orders are expected to increase 0.7% (median 0.8%), while shipments fall 1.1%. Inventories are expected to drop 0.8%. The durable goods report has set the tone on the month, where orders jumped 1.8%, shipments fell 2.1%, and inventories declined 0.8%. On the nondurable side, we expect figures comparable to the more subdued trend seen so far in 2009, with inventories again weaker than shipments. The data will help firm-up the trajectory for real equipment spending and inventories for Q2 GDP. For more, see the preview.

09:32 ET The 16k drop in U.S. initial jobless claims to 614k in the final week of June largely just reversed the 18k rise to 630k (was 627k) in the third week of the month, and leaves the figure modestly above the 612k reading from the BLS survey week. Though claims are falling from the recent spike to 643k in the second week of May that reflected the idling of 27k workers at Chrysler, and the earlier cycle-highs in March of 658k for the monthly average and 674k for the weekly gauge, the downtrend thus far remains modest. This should change next week, as we expect the absence of seasonal shutdowns at already-closed auto factories during the 4th of July survey week to allow a hefty 89k drop in claims to the 525k area, and we continue to expect the resumption of vehicle assemblies over the coming weeks to allow the claims figures to stabilize in this lower 520k area by August. An encouraging shift in trajectory is also already underway for continuing claims, as today's 53k drop is the second decline in three weeks -- though we do expect these figures to continue to rise with the jobless rate.

09:27 ET Treasury Option Action: some bearish activity has been reported into the rally on underlying Treasury futures, perhaps with an eye to next week's supply, which will be announced this afternoon. Sources cite sales of 1k in Aug 118-119 "call spreads" and demand for 2k in Aug 111-113-115 "put butterflies," on top of similar earlier trades. On 5-year futures there was some light demand for Sep 114.5-115 "put spreads." The Sep 10-year futures was up 15-ticks to 116-24 for the most recent of these trades, while stocks are set to open lower.

09:27 ET FX Action: USD-JPY is finding support from profit taking from those accounts that sold ahead of 97.00 offers first thing in the European morning. The source of the interest is reportedly coming from macro names and proprietary accounts, while underneath 96.00 there has been interest from option names amid reports of 95.95 expiries, along with the interest that is already reported at 96.00, 96.20 and 96.30 for the 14:00GMT N.Y. cut. Further USD-JPY losses could ensue after the "cut", with a weak Wall Street performance anticipated following the weak U.S. NFP number. the JPY crosses are also expected to remain on the defensive, with EUR-JPY eyeing its 134.76 lows and looking towards stops under 157.00.

09:26 ET FX Action: After the initial post data chop, USD-CAD has steadied over the 1.1530 level, though dealers report thin conditions as the U.S. market looks ahead to a long weekend, and a good number of Canadian players turn Wednesday's holiday into a longer weekend. Softer oil and equities have weighed on loonie appetite, though gains beyond Wednesday's 1.1655 highs are not anticipated. On the downside, dealers now report bids into 1.1500.

09:08 ET Canadian equities look set to open defensively following the Canada Day holiday, with the disappointing U.S. employment report likely to overshadow modest gains for Wall Street on Wednesday. The energy sector may be a major drag after crude oil tumbled below $68/bbl, extending its pullback from Tuesday's trend peak at $73.38. Spot gold also remains on a weaker footing, down $11 at $929/oz. Magna will remain in focus after China's BAIC emerged as a potential bidder for Opel. In other corporate news, Air Canada mechanics and technical staff voted down a labour pact that had been recommended by union negotiators, leaving the airline's recovery plan in jeopardy.

09:07 ET The U.S. jobs report revealed a bigger than expected 467k June payroll drop, following a tiny 8k net upward bump to the April and May figures, though the decline included a 52k reversal in government jobs likely due to the Census. More troubling was the drop in the workweek to a new low of 33.0 hours from 33.1 over the last three months, and an associated big 0.8% drop in hours-worked that followed a much smaller 0.3% (was 0.7%) May decline. The mix left a hefty 7.9% rate of decline for hours-worked in Q2 overall that followed prior contraction rates of 8.9% in Q1, 7.4% in Q4 and 2.8% in Q3. We have revised down our Q2 GDP estimate to -2.5% from -2.0%. The weak hours-worked trajectory implies further downside risk, but we face offsetting upside risks from demand indicators that leave a gap we assume will be closed by a hefty $126 bln Q2 inventory liquidation. We now assume a big 1.2% June personal income drop that will partly reverse the 1.4% May surge, as we unwind the one-off social security distribution. Weakness also reflects the 0.8% drop in hours-worked and flat hourly-earnings figure, that should leave a 0.2% income drop aside from the tax distortion. Our forecasts translate to an 8.1% Q2 growth rate in disposable income that follows a 5.0% Q1 pace. These gains exceed the respective overall personal income figures of 3.6% and -2.3% due to the sharp drop-back in personal current taxes since the start of 2009. We also now expect a 0.8% June industrial production drop that is consistent with a 12.0% Q2 rate of decline, following prior declines at rates of 19.0% in Q1, 13.0% in Q4, and 9.0% in Q3. Weakness in June industrial production reflects the big 1.2% decline for factories and a 2.2% drop for mining. Vehicle assemblies likely fell 8% in June to a 4.0 mln rate due to the Chrysler and GM bankruptcies. June construction hours-worked fell 1.7% alongside the 79k construction payroll drop, and we now assume a 0.8% June decline for construction spending following the 0.9% drop in May.

08:59 ET ECB's Trichet said there is no reason to change the current full allotment proceduce in the refi tenders, even though he stressed that he excludes nothing. Trichet noted that EONIA is between the ECB benchmark and the deposit rate and that the central bank wants EONIA to be driven by "real markets". He said that is not surprising that deposits have risen given the huge success of the ECB's first 12 months operation.

08:52 ET FX Action: EUR-USD tested the 1.4015 area after the ECB's Trichet said activity was set to remain weak in 2009. Trichet said that the current level of interest rates were appropriate, adding that the central bank will continue to monitor all developments very closely and would unwind measures quickly when the economy improves. The overall euro tone is looking fairly weak, but EUR-USD is still managing to hold on to the 1.4000 level for the third consecutive session, which may encourage some bargain hunting on dips. Good size stops are noted under 1.4000 and through 1.3970, while on the topside offers are expected to come in at 1.4100-20 after the fall out to 1.4015 lows. Option strikes between 1.4000 and 1.4100 may add to the choppy price action. According to sources a massive 1.4000 strike is rolling off today and tomorrow and a U.S. house is short of the position and behind a large portion of the euro selling down to the lows.

08:48 ET ECB's Trichet said the central bank will continue to monitor very closely all developments and stressed that the ECB will quickly unwind measures when the economy improves. With the ECB now expecting a recovery from mid next year this backs our view that rates will start to rise again next year.

08:46 ET ECB's Trichet noted the slowdown in M3 growth and lending rates, but still said that past ECB rate cuts have been passed on and resulted in improved financing conditions, which should support the economy. The comments suggest that the central bank still remains confidence that the banking channel is functioning, which means there should currently be no need to extend the ECB's asset purchase programe and circumvent the banking channel.

08:44 ET U.S. equities flinched lower after the payrolls report redoubling losses already in place in advance of the key reading ahead of the long holiday weekend. After the usual initial round of post-data volatility, volumes should quickly drain for the shortened session, with factory goods orders the last hurdle. The Dow is 108-points lower, S&P dipped 12-points and NASDAQ is off 10-points ahead of the opening bell. Meanwhile, the dollar index has rebounded above 80 overnight after some supportive comments out of China and Japan and the ECB held pat on rates. NYMEX crude eased to the $68 bbl area after the EIA stats Weds. In corporate news Exelon raised its hostile bid for NRG to $7.45 bln, while Illumina fell over 21% on weak a Q2 revenues and outlook. The WSJ reported that GM is aiming for an IPO next year and parts maker Lear may restructure its debt and file bankruptcy. See Dow, S&P and Nasdaq.