Recently the hope for forex investors had been that the U.S. economy at least could continue its growth even as Europe was declining but Friday’s U.S. jobs report confirmed that U.S. economy is not heading for a strong recovery this year.

The Labor Department report showed that the U.S. economy added just 69,000 jobs in May, less than half what analysts expected. Readings for the prior two months were also revised down, while the unemployment rate climbed for the first time in almost a year, to 8.2%

The negative employment data caps the recent deterioration in global economic data.

From China to Europe to the U.S., all the data has shown real slowing. The data, which showed U.S. job growth at its weakest in a year, underscored a growing sense that the U.S. economy is not immune to a slowdown in Europe where Spain is struggling to support its banks or to China’s slackening economic demand.

Forex market participants got very optimistic earlier this year. Now, reality is setting back in. Poor Chinese manufacturing data and contracting European economy added to the anxiety and boosted the demand for safe-haven greenback and yen. Most investors don’t think the problem in Europe is going to infect the U.S. economy as much as it would the U.S. financial system. However, the recent data certainly suggests that perhaps the softness in Europe is either influencing the U.S. or that the U.S. recovery may not be strong enough to overcome the softness in Europe.

Federal Reserve Chairman Ben Bernanke will testify before a congressional committee about the state of the U.S. economy on Thursday. The Fed’s next policy meeting is scheduled for June 19-20. The jobs figures, which raised expectations for another possible round of monetary easing from the Federal Reserve, also carried an important political dimension. If sustained, the weakness in employment could threaten President Barack Obama’s bid for reelection in November.

Data from the Commodity Futures Trading Commission showed speculative traders slightly increased their open short EUR positions. Net euro shorts jumped to 203,145 contracts, the largest on record, compared with 195,361 net short contracts the previous week. CFTC’s data also showed that speculative traders decreased their open short CHF position by 13.8% from a week earlier to reach a net of $3.5 billion. They also decreased their open short JPY position by 36.6% to reach a net of $1.78 billion, the data showed.

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