The forex trading week was dominated by meetings of the IMF and G7, and although the latter restrained from releasing their statement until after the close of trading on Friday, the former’s overall pessimism once again heightened risk aversion. IMF forecasts of a 25% chance of a global recession and warnings of financial institution writedowns and asset losses that could approach US$1T sent traders scrambling for the safety of government debt, although the current total is merely US$245B. Over the weekend, the G7 communiqué spoke strongly on the potential impact of the weakening USD on global economic and financial stability, yet made no mention of possible intervention on its behalf.

Although the weaker USD boosted exports to a record level in February, minutes from the March FOMC meeting painted an overall bleak picture of the U.S. economic situation, with growth expectations revised markedly downward for 1H2008 followed by only moderate expansion in 2H2008. The last coordinated central bank intervention on behalf of USD was in 1995.

The ECB, as expected, left interest rates on hold, with M. Trichet’s statements at the following press conference giving more emphasis to the downside risks to growth, with the international financial turmoil lasting longer than anticipated. German industrial production remains strong and early estimates of regional GDP for 1Q2008 surprised to the upside; however, other nations in the Eurozone have been harder hit by economic woes, including high fuel and food prices, rising inflation, slowing exports, and the strength of EUR, and even German industrial orders, a three- to six-month leading indicator, have declined for three consecutive months, strengthening the case for ECB rate cuts in 2H2008. Although EUR/USD reached a new record at 1.5915 on Thursday 10 April, again it failed to push through to 1.60, continuing in a narrowing consolidation pattern from a rising support line drawn off 24 March’s low of 1.5341, as shown on the H4 chart, below.

The BoE bowed to waning consumer confidence and falling house prices, and lowered interest rates 25bps to 5.0% despite expectations of continued high inflation. GBP depreciated against 13 of the 16 most actively traded currencies, falling to new record lows against EUR for four consecutive days, with Friday’s 0.8038 capping the streak, before closing at 0.8025. The currency pair has lost 9% in 2008 alone. GBP/USD was not so dramatic, falling 1.1%, mainly on Tuesday 8 April, and closing Friday at 1.9720.

Canadian economic data surprised to the upside this forex trading week, with building permits, housing starts, and even exports showing remarkable strength; however, given the strong CAD and weak U.S. demand, this seems unsustainable. USD/CAD rose during the week and closed at 1.0232, near the resistance level in its current trading range between 0.9700–1.0300.

The BoJ also left interest rates on hold, with growth forecasted to slow due to rising oil prices. JPY continues to trade on risk aversion rather than Japanese economic fundamentals, and USD/JPY seesawed for much of the week, opening Monday at 100.50, then falling 250 pips on Wednesday and Thursday, only to regain 180 on Thursday and Friday, before falling 140 on Friday prior to closing at 100.85, a net gain of 35 pips for the week.