LAST Friday’s surprise announcement by the SEC that it will be pursuing fraud charges against Goldman Sachs rocked capital markets across the world. With news that other European governments are now considering litigation, the Goldman Sachs saga could drag on for weeks and cast a negative pall on equity markets and risk trades across the board.

Yet while the turmoil in the financial sector dominates the headlines, putting downside pressure on risk assets, the recovery trade could suffer much deeper, more sustained damage if recent disappointing US economic data proves to be a signal for an unwelcome change of trend in growth. Last week, both the weekly jobless claims and the University of Michigan Consumer sentiment survey missed their mark, badly raising concerns that US recovery could be stalling.

The US jobless claims numbers rose for the second week in a row, climbing to 484,000 from the forecast 439,000. For the US economy to consistently generate jobs, the weekly jobless number must approach the 400,000 level and ideally drop below it. Meanwhile, the University of Michigan data showed the single largest monthly drop in more than a year as sentiment sank to 69.5 from 73.6 in the previous period. Analysts blamed the decline on rising petrol prices, but whatever the reason, the US consumer remains guarded about the prospects for recovery. Up to now most of the US economic rebound has been driven by a rebuild of inventories and ramp up in production. However, that dynamic is not sustainable unless the US economy begins to consistently generate jobs.

With little US economic news due this week, the markets have few data points from which to draw any meaningful conclusions. However, if on Thursday the jobless numbers once again rise materially above expectations for the third week in a row, the recovery trade could see a further unwind with Aussie targeting $0.9000, euro testing its yearly lows below $1.3300 and cable once again probing the $1.5000 barrier as investors reconsider their optimistic assumptions of US growth in the second half of 2010.

Boris Schlossberg and Kathy Lien are directors of currency research at GFT. Read commentary at or e-mail