Another 50bps interest rate cut by the FOMC, another open-ended statement allowing room for additional cuts, and still the U.S. dollar holds its own as risk aversion buoys safe-haven currencies. A consortium of major banks team together to rescue their insurers in a fascinating example of financial incest. The forex trading market seemed to pause this week, waiting to see which economies have successfully de-coupled from that of the U.S. and which will be affected by the slowdown.

With the RBA meeting on Tuesday 5 February, a rate hike is widely anticipated to combat Australia’s rising inflation, currently at 3.6% and well above the target range of 2–3%. The widening yield continues to bolster AUD despite fluctuating gold prices, and with its New Zealand counterpart performed the best this past week amongst all the major currencies. AUD/USD rose each day from opening at 0.8781 to a high of 0.9046, continuing its long-term range trading between 0.8550 and its current position, a price channel it entered in November and best seen on the daily or four-hour chart.

Economic data still indicate the U.S., although hovering on the brink, has not tipped over into recession, with employment data disappointing but balanced by expansion in the manufacturing sector. Although the location-specific housing correction is not likely to bottom out before the middle of this year and the credit crisis has trickled down to the monolines, the Fed’s measures appear to be taking hold and the U.S. financial situation seems to be stabilizing.

The ECB meets Thursday and are widely expected to leave rates on hold, however, the world awaits the press announcement to judge its level of hawkishness, particularly in light of the IMF’s downward revision to their expectations for growth in the Eurozone for 2008. EUR/USD’s failure to broach the magical barrier at 1.5000 on Friday lead to a stop-loss sellout back down to 1.4786 before closing at 1.4798. The end of this party may be in sight.

The BoE also meets Thursday, and the forex trading market expects another 25bps rate cut to follow, although inflation concerns may override the recent poor economic data, particularly in housing and retail sales. A similar sellout dropped GBP/USD from near the psychological 2.000 level to 1.9653, and anticipation of the BoE’s decision may hold it near there.

The Japanese yen and Swiss franc, as safe-haven currencies, continue to serve as risk aversion barometers without significant reference to their underlying economic conditions. USD/JPY dropped below 106 Thursday and Friday before closing at 106.58, and USD/CHF reached a record of 1.0731 on Friday before rebounding strongly to 1.0888, ending the week on an upward note.

The growth in U.S. manufacturing boosted Canadian factory prices and the CAD, which appreciated against 14 of the 16 most-actively traded currencies. USD/CAD, despite bouncing up on Thursday and back down on Friday, maintained a steady downward pressure to close again below parity at 0.9936.

Inflation remains the watchword in New Zealand as low unemployment counters falling residential real estate prices. NZD/USD continues long-term range trading within a price channel entered in September 2007, between 0.7434 and 0.7933, best seen on daily and four-hour charts and continuing the strong correlation between AUD/USD and NZD/USD.