The long-expected about-face of M. Trichet came on Thursday 7 February: although the ECB maintained Eurozone interest rates at a steady 4%, the statement released, rather than containing the usual hawkish focus upon inflation, instead admitted the downside risks to economic growth and the Euro began to slide as investors feared the ECB, unlike the Fed, has perhaps waited too long to prevent a recession. With the IMF lowering its outlook for global growth to 4.1%, the possibility of commodities also beginning to unwind from their record high prices becomes stronger.

Inflation continues to hound the Australian economy, driven by a housing shortage, strong retail sales and volumes, and a tight labour market. Monday 11 February sees the release of the RBA’s Statement on Monetary Policy with its inflationary forecast, which will give solid clues as to any future interest rate hikes atop the 25bps raise to 7% on Tuesday 5 February. The forex trading week saw little movement in AUD/USD, mainly trending down from a new reaction high at 0.9101 to close Friday at 0.8951.

Although the economic data from the U.S. continues to be strangely mixed, with ISM manufacturing rising in January but non-manufacturing, construction spending, and the labor market all falling, much of the USD weakness has already been priced into the market and the room for further depreciation is limited. Despite the 2.25% lowering of interest rates by the FOMC since September, CBOT futures show 88% odds of an additional 50bps cut by 18 March, with the remaining 12% for a 75bps cut; there are no odds for a 25bps cut or for holding rates steady.

Economic data from the Eurozone begin to warrant a rate cut, with ongoing weak retail sales, composite PMI showing almost no growth, and confidence surveys declining. Although headline inflation remains at a 14-year high of 3.2% Y/Y, the slowdown in growth will correct that in time. As forecast, the EUR/USD party seems over, with the psychological high of 1.5000 remaining unbroken. The established range between 1.4310 and 1.4900, best seen on the daily chart, is both technically and fundamentally at risk for a break to the downside.

The BoE cut interest rates by 25bps to 5.25% on Thursday 7 February in response to wobbly consumer spending and housing data. Their quarterly inflation report, the key to future interest rate movements, will be released Wednesday 13 February. GBP/USD lost 1% this past forex trading week with Thursday’s drop particularly impressive, and the trend remains down, closing at 1.9455.

EUR/GBP has also steadied, with the support level of 0.7390 holding since early January 2008. The upper end of the range is the 0.7612 high set 15 January, although the 0.7543 high set 4 February appears more sustainable.

With January’s employment growth in Canada coming in four times greater than expected and new home starts rising to match, the Canadian dollar gained against all 16 of the most actively traded currencies and continues to trade near parity with the USD. CAD/USD trades within the range it entered 25 January, between 1.0126 and 0.9926; the trend remains flat.

Economic data from Japan also paint a gloomy picture and the yen continues to underperform, with declining volatility and low volume keeping the pair inside a narrow forex trading range between 107.90 and 105.00.