The big news remains the FOMC’s 75bps emergency rate cut Tuesday, the largest single U.S. interest rate cut for 25 years. Although the FOMC’s released statement discussed “weakening of the economic outlook and increasing downside risks to growth,” the move’s timing suggested an unspoken intention of controlling the butchery amongst global stock markets, ironically moderate in the U.S. as opposed to the 10–14% losses experienced in parts of Europe and Asia, and totalling as much as $7.5 trillion in lost market value. The Volatility Index, which reached 37.57 on Tuesday, fell to 27.78 within two days of the cut, with the U.S. dollar mainly rising and falling in unison.

The inflation forecast for Australia is proving accurate, with annual core rates now standing at 3.6%, well above the RBA’s predicted 3.25%, making the necessity of another interest rate hike in the near term, possibly at the 5 February meeting, almost a certainty. AUD/USD fell through major support at 0.8699 on Monday and even through December 2007’s support at 0.8550 on Tuesday before rallying back into the channel below 0.9000 for the remainder of the week.

The FOMC meets again on Tuesday 29 January, with additional rate cuts widely expected. With the housing correction continuing in certain parts of the U.S. and the possibility of a slump in manufacturing, as reported by the Philly and Richmond Fed surveys, futures on the Chicago Board of Trade still show a 66% chance of a further 50bps cut and a 34% chance of a 25bps cut. Although the short term may see dollar gains, the long-term outlook remains dollar negative.

Eurozone data shows economic growth slowing but remaining positive, and the ECB remains firmly opposed, at least in the short term, to cutting interest rates despite the FOMC’s dramatic example. The interest rate spread supports the bottom of the EUR/USD’s range at 1.4310; as even the deepest possible rate cuts have already been priced into the pair, long-term resistance remains the psychological high of 1.4968. Strategy remains to buy on the dips.

The pound sterling had a quiet data week with the exception of a poor U.K. retail sales report. Although GBP/USD set a new reaction low of 1.9336 during forex trading during the height of Tuesday’s crisis, it rebounded sharply to again test the resistance level at 1.9849 at Friday’s closing.

The Canadian dollar rose against all 16 of the most actively traded currencies on rising energy and metal prices, including another record high for gold at $923.73 set Friday. USD/CAD fell 360 pips for the week in a slide that, again, began on Tuesday, but rallied on Friday to close at 1.0069.

Inflation is also becoming a serious problem for New Zealand, although the RBNZ felt constrained to leave rates on hold whilst studying the data to determine if the Australasian economy is sufficiently decoupled from those in North America and the Eurozone to withstand the current crisis. NZD/USD fell to a low of 0.7382 on Tuesday before rebounding to resistance at 0.7752 before closing Friday at 0.7700.

The Japanese yen appreciated against all 16 of the most actively traded currencies during this latest round of risk aversion and carry trade trimming. USD/JPY also set a new long-term reaction low of 105.31 before rallying Friday to resistance at 107.89 and closing at 106.81.