A quiet week in the forex trading market, with many currency pairs consolidating within ranges or retracing.

Australian data showed −3.3% q/q in dwelling commencements 1Q2008, however 4Q2007 was revised up to 4.2%. The WMI leading index, at 2.8% in April, was below trend of 4%, and industrial surveys reflect slowing domestic demand, scaled back capex growth, and declining business sentiment, but a resilient labour market. AUD/USD recovered around three-quarters of the previous week’s losses, trending up throughout the week to close above the psychologically important 0.9500 level at 0.9540, while AUD/CAD rose back into the top half of its regression channel.

The FOMC meets 24–25 June and is widely anticipated to leave interest rates on hold at 2.0%, with the real attention reserved for the press announcement following, which may give a lead on future monetary policy. This was also a quiet week for U.S. releases, with housing starts down 3.3% and building permits dropping 1.3% m/m. May industrial production printed slightly weak, with mild weather curtailing utility requirements and capacity utilization declining. With weekly unemployment claims slowing in June, current data reveals annual GDP growth of roughly 1.0%.

Although the German ZEW business sentiment index declined markedly, May Eurozone inflation was revised upward to 3.7% y/y and German PPI printed at 6.0%, meaning the ECB faces a loss of credibility if they do not follow through with July’s threatened rate hike. This is despite plummeting residential starts and permits in France, as well as historically low levels of consumer confidence and consumption. EUR/USD regained 61.8% of last week’s loss in a potential Fibonacci retracement, from 1.5843 to 1.5303 back to close at 1.5625, best seen on four-hour charts.

Doubtless BoE Governor King had his letter to Chancellor Darling prepared in advance of May’s CPI reading of 3.3% y/y, fueled by soaring food and energy costs although the core rate remains at 1.5%. Surprisingly strong May retail sales at 3.5% m/m and 8.1% y/y can also be blamed on unseasonable weather leading to greater consumer activity, but led the forex trading market to immediately price possible short-term interest rate hikes into GBP/USD, which recovered all of the previous week’s losses. EUR/GBP was more subdued and rose only 0.7% for the week to close at 0.7904, although if the ECB follows through on its threat, the pair may retest the 0.8100 level.

With Canadian May CPI rising to 2.2% y/y and April retail sales rising 0.6% ex-automotive, the BoC shifted monetary policy to neutral on 10 June. USD/CAD remained within its established range of +/− three cents of parity and closed at 1.0169.

Although the Japanese economy grew 4.0% in 1Q2008, current data for 2Q are bleak and could turn negative. With petrol duties re-introduced in May, CPI is expected to rise. On daily charts, USD/JPY hovered just beneath its 200-day moving average but could not close above, and gave up the fight to close at 107.25. AUD/JPY broke through strong resistance at 100.45, respected for the previous two weeks, to close at 102.32, a level not seen since November 2007.

The drought continues to weigh on New Zealand’s agricultural sector and is forecast to subtract 0.5% from next Friday’s 1Q2008 GDP release, widely expected to print in the red. AUD/NZD stayed within range between 1.2425 and 1.2559, while NZD/USD rose 1.6% for the week to close at 0.7611.