Another dramatic week in the forex trading market, with rhetoric from multiple central bankers forcing traders to reconsider expectations of rate cuts in the U.S. and Eurozone. Broad-based strengthening of the U.S. dollar lowered some commodities prices, including crude oil, further helped by a promise from Saudi Arabia to increase production within the month to meet increasing global demand.

The RBA’s tightening bias was reflected in reduced demand for housing financing, with new home loans down 5.8% in April and 17.3% over the past three months. Consumer sentiment fell by 5.6% in June to the lowest level since late 1992, and consumer inflation expectations are higher than ever previously recorded at 5.9%. Weaker-than-expected May labour force data sent AUD tumbling against a basketful of currencies including the yen and the Canadian, New Zealand, and U.S. dollars. AUD/CAD dipped from the top toward the bottom of its regression channel, best seen on daily charts, where it has been range-trading since before the turn of the year, and AUD/NZD bounced between support at 1.2425 and resistance at 1.2560. AUD/USD fell from a high of 0.9646 on Monday to a low of 0.9326 on Thursday before paring losses to close at 0.9385 Friday, a loss of 2.6%.

Although some of USD’s gains this past forex trading week were fueled by comments from Paulson, Bernanke, and other Fed representatives, it was not slowed by May retail sales at 1% m/m, double economists’ expectations, and CPI increasing 0.6% m/m and 4.2% y/y. This makes the argument for future FOMC rate hikes more believable.

Expectations for long-term monetary policy tightening in the Eurozone were moderated during the week as ECB members pointed out that one possible rate hike in July does not equate to a series thereof. Eurozone May CPI faces upward revision from 3.6%, German wholesale inflation surged to 8.1% y/y, and secondary wage pressures are taking hold throughout the Eurozone. At the same time, underlying growth and industrial production are trending down and house prices are plunging in Ireland and Spain. On four-hour charts EUR/USD demonstrated a textbook Fibonacci retracement from 1.5843 on Monday to 1.5530 Tuesday, retracing to the 38.2% mark at 1.5587 Wednesday before falling the remainder of the week to close at 1.5362.

U.K. May CPI will be released Tuesday and is widely expected to rise above the 3% y/y reached in April, due to climbing costs of energy, food, and financial services. GBP saw mixed trading during the week, with EUR/GBP retreating from a weekly high above the psychological 0.8000 level to close at 0.7888, and GBP/USD echoing EUR/USD’s Fib retracement although not as neatly, falling from 1.9800 to 1.9490 then spiking above the 50% level to 1.9666 before dropping as low as 1.9408 and closing the week at 1.9471.

New Zealand’s May home sales are down 53% and food prices are up 6.8%, both y/y. Although retail sales rose 1% in April, removing volatile car sales from the calculations left a 0.5% decline, and drought conditions dragged down exports while rising commodities prices hiked the cost of imports. Overall GDP figures are looking bleak, and the NZD/USD fell through the week, with a break for profit-taking on Wednesday, finally closing at 0.7491.

The Bank of Japan left rates unchanged at 0.5%. JPY disconnected from carry trade activity and reacted to interest rate expectations, strengthening 0.5% against AUD but declining 3% against USD and 0.6% against EUR.