Inflation was the watchword for the week, with record high commodity prices continuing to boost consumer and business prices across the globe, but mainly highest within the energy and food sectors.

Inflationary pressures continue to drive the Australian economy, with wages, motor vehicle sales, construction activity, and investment spending all either expected to rise or already confirmed. The minutes of the RBA meeting from 5 February were as hawkish as expected, leading to forex trading market expectations of additional interest rate hikes in March and May. AUD/USD broke above resistance at 0.9100 and has begun a consolidation between that level and 0.9250, with the overall trend still rising. Although volume is not high, the momentum is strong, with opening prices for the week above the five-day moving average. The trend appears sustainable for at least the short term.

The U.S. continues to skirt recessionary territory by a hair’s breadth, with the housing correction continuing to work its way through many sectors of the economy. Although consumer prices are rising here as everywhere else, with inflation at 2.5% Y/Y and petrol prices alone up 34.5% in the past twelve months, the Fed has made it clear that fighting the economic slowdown will be given the highest priority, and therefore CBOT futures show a 96% chance of a 50bps rate cut on 18 March, with the remaining 4% calling for a cut of 25bps.

The ECB, on the other hand, continues to concentrate on rising inflation rather than the downside risks to growth. The flash estimate of CPI in the Eurozone forecasts 3.2% in January (actual data release Friday 29 February) making the problem greater on that side of the Atlantic. EUR/USD continues to trade within a range between 1.4967 and 1.4310, best seen on daily charts, currently at the three-quarter point and forming a fourth wave, each with a higher low than the previous one.

In the U.K., crawling growth in the services sector, particularly the financial services, restrained 4Q2007 GDP to 0.6% Q/Q, the lowest level since 2003, and overall economic data clearly indicates Europe’s second-largest economy has been hurt by the U.S. slowdown. GBP/USD also moves within a range best seen on daily charts, between 1.9950 and 1.9400, currently rising around the midpoint of the range.

Rising equities and commodity prices did not boost the Canadian dollar as weaker-than-forecast retail sales, added to previously released data from inflation, manufacturing, and international trade, all combined to confirm the economic slowdown is extending north of the U.S. border. CAD weakened against all 16 of the major currencies this forex trading week, and continues to consolidate within a 4% range of parity with USD.

A large amount of data on the Japanese economy will be released this coming week, including industrial production, retail spending, unemployment, housing starts, and CPI inflation, all of it expected to forecast growth slowing yet still positive, and none of it expected to effect forex trading on yen crosses. USD/JPY also consolidates within a range, this one between 108.50 and 105.50, following a series of lower lows since June 2007, best seen on weekly charts. The trend continues lower