It seemed a bloodbath in the global equities markets as investors sold off risky investments for more secure financial holdings, particularly following FOMC Chairman Bernanke’s pessimistic testimony on Thursday 17 January, and the forex market endured another week of jittery trading. Certain commodities, including gold and oil, eased down from unsustainable record highs with technical indications of falling further, and multiple central banks will meet to discuss interest rates in the coming week although it seems words have become the most powerful determining factor of currency values in the forex trading market.

The Australian dollar weakened against the U.S. dollar, the yen, and other major currencies as investors cut carry trades and the price of gold retreated from $914 per ounce for two successive days. Although AUD/USD rose to 0.9017 on Tuesday 15 January the high was not sustainable, and the pair fell back toward the major support level of 0.8699, often spiked through yet generally respected since September 2007, with the exception of the period 14–27 December.

Chances of a 75bps cut in U.S. interest rates by the FOMC during their January meeting were raised to 72% on the Chicago Board of Trade, with a 28% chance of a 50bps cut. Despite additional massive writedowns from major global financial institutions and the continuingly depressing economic data, USD held up well, rallying against the Euro although sliding to record lows against the Swiss franc.

After reaching a high of 1.4921 on Tuesday 15 January, EUR/USD sold off on speculation the ECB must cut interest rates due to slowing economic growth in the Eurozone, as implied by ECB council member Yves Mersch’s comments on Wednesday 16 January. Although he qualified his dovish stance the following day, the damage was done, and EUR fell sharply against multiple currencies for the remainder of the forex trading week. How far the sell off may continue remains a matter for speculation.

In contrast, the pound rallied from record lows against EUR and strengthened against all but three of the majors this past forex trading week, despite additional evidence of slowing economic growth in the U.K. GBP/USD entered a channel on Wednesday 9 January and has remained roughly between 1.9740 and 1.9517 since that date, closing Friday 18 January at 1.9541.

The Japanese yen was the big gainer this past week amongst the majors as carry trades were unwound. The yen rose 1.8% against USD and 2.9% against EUR this past week alone. The Bank of Japan meets Tuesday but is widely expected to leave interest rates on hold despite some evidence of economic slowdown. USD/JPY broke through the major support level at 107.22 on Tuesday 15 January and traded about that price as a pivot point for the remainder of the week without a viable trend.

The Bank of Canada also meets on Tuesday and is widely expected to cut the lending rate by an additional 25bps following their December cut. The forex trading market began pricing these cuts, and the anticipated continuing drops in commodities prices, into CAD in advance, making the “loonie” the second-worst performer amongst the majors. USD/CAD continued to trend up following last year’s massive drop although it remains to be seen if a break above 1.0310 can be sustained.