This forex trading week saw a return of risk aversion and high volatility due to crude oil supply issues and rumours of further bank writedowns and profit losses. Equities indices slumped worldwide, accompanied by soaring commodities prices and strengthening of the safe-haven currencies as carry trades were once again unwound. Crude oil spiked above US$140/bbl as investors shifted funds from softening stocks to harder assets, and consumer confidence indices tumbled around the globe.

The RBA meets Tuesday 1 July and is expected to leave rates on hold due to softening consumer demand and surprisingly weak employment data for June; however, rising coal and iron ore prices may stoke the Australian economy further and 2Q2008 inflation is expected to print above its current 4.2% y/y. As a commodities currency AUD strengthened, with AUD/USD climbing in the price channel it established the previous week to close at 0.9602. AUD/NZD rose in the first part of the week and channelled for the remainder, while AUD/JPY, representative of the carry trade, tumbled with equities indices at week’s end to close at 101.94.

The FOMC left rates on hold and clearly signalled a shift in monetary policy to neutral, sending USD broadly lower as the forex trading market expected a more hawkish tone to the announcement. The tax rebate scheme is supporting consumer spending and with exports is expected to keep GDP growth in positive territory for 2Q2008; however, house prices continue to fall albeit at a slower pace, and employment growth figures, to be released Thursday 3 July, will likely trend lower.

The ECB meets Thursday 3 July and is widely expected to raise interest rates by 25bps, taking a stand against inflation despite multiple indications the Eurozone economy is shifting down. Most important for the forex trading market will be the tone of the announcement, as the market has already priced in a series of two or three successive rate hikes and any clear signal indicating a return to a neutral bias could send EUR lower, particularly against commodity and safe-haven currencies. On the other hand, June CPI inflation will print Monday; if it rises significantly above its current 3.6%, EUR could strengthen further. EUR/USD rose 1.2%, bouncing off support at 1.5465 and continuing the previous week’s climb to close at 1.5790.

U.K. GDP growth for 1Q2008 was revised down to 0.3% q/q from estimates of 0.4%, with an annual reading of 2.3%. May CPI is up 3.3% and BBA mortgage approvals down 56% y/y, with an interesting divergence between actual retail sales at 7.0% and surveyed results at 1.0%. On 10 June EUR/GBP began channelling within a narrow 100-pip range and this trend remained in effect, while GBP/USD on Thursday pierced strong resistance at 1.9846 to close at 1.9945 at the top of a two-week linear regression channel, best seen on four-hour charts.

New Zealand’s 1Q2008 GDP as expected printed red at −0.3% q/q, with higher import prices and lower export prices and volumes combining with sharply falling consumer confidence and spending. Due to the drought the agricultural sector was particularly hard hit. NZD/USD remained within a narrow 100-pip channel for the week and closed at 0.7603.

The Japanese yen strengthened as carry trades were unwound. USD/JPY was unable to close above its 200-day moving average on daily charts after nine successive attempts, only to fall off Thursday and close the week at 106.15.