EUR/USD headed downward as investor concern over Europe’s debt crisis intensified and economic reports in China missed estimates. China said its economy expanded 8.1% in the first quarter, the slowest pace since 2009. The yield on 10-year Spanish sovereign debt climbed 16 basis points to 5.98%. Also the cost to insure against a Spanish default jumped to a record high.

Everyone is looking for global growth, but the slowing in China and the rising yields in Europe are creating questions about how strong we might expect it to be. The concern is now on global recession. The data out of China and our consumer sentiment data point to a recession, which the market has been in denial about for a while.

A sharp re-emergence of fears over contagion from the euro zone debt crisis dragged down the euro against the dollar on Friday. EUR/USD closed the week at 1.3072. We are seeing some really serious stuff in the European credit markets. Spanish Prime Minister Mariano Rajoy is struggling to convince investors he can get Spain’s finances under control after last month refusing to meet deficit targets set by the European Commission and the previous government. Investors are cautious today on worries that Europe’s sovereign debt crisis is back to the forefront.

The latest released from CTFC showed that speculative traders held $16.6 billion in net bets that the euro currency will fall. That represented 101,364 net contracts, up 26% over the week before, according to the Commodity Futures Trading Commission’s weekly report on the commitments of traders. Speculators trading the yen held a net $10.2 billion in bets that the currency will decline, 4% more than the previous week. That position stood at a net 66,084 contracts, marking the largest short position in the yen since July 2007. Investors held a net $1.3 billion in bets against the U.K. pound. That was more than double the previous week’s negative positions on British pound.

CoT Chart Euro

CoT Chart Sterling

CoT Chart Japanese Yen