The forex trading week began on a risk-aversion downslope, with an old-fashioned run on U.S. mortgage bank IndyMac and fears for mortgage financiers Fannie Mae and Freddie Mac. However, when the U.S. financial system survived and 2Q2008 earnings for the industry sector were not as gory as expected, the price of crude oil slumped over 10% and global equities indices ticked higher. The current reported tally for the subprime crisis is US $436Bn in losses and writedowns for global banks and securities firms.

Although July’s RBA minutes noted consumer demand moderating, surging export commodities prices, particularly coal and iron ore, continue to fuel Australia’s terms of trade and could injure the sustainability of that demand slowdown. After trading between 0.9500 and 0.9750 for the better part of three weeks, AUD/USD rose to 0.9848 before falling back within its established range on Wednesday and closing the week at 0.9702. AUD/CAD made yet another unfruitful attempt on the 0.9840 resistance level before sliding into the bottom half of its seven-month regression channel. AUD/NZD spiked to 1.2779, and AUD/JPY continued to serve as risk-aversion monitor for the carry trade, closing up for the week at 103.73.

U.S. retail sales rose marginally in June by 0.1% m/m. CPI printed headline at 5.0% y/y and core, excluding food and energy, at 2.4% y/y; the PPI printed headline at 9.2% and core at 3.0%. With oil prices slumping below US $130 per barrel, USD cautiously rose from severe lows, and further earnings to be reported this coming week include Bank of America, Wachovia, Ford, General Motors, and Yahoo, all major enough to influence currency movements.

The German ZEW business expectations survey fell to lows not seen since 1991 and Eurozone PMI manufacturing and service readings slipped below the 50 level in June. The Ifo index and July PMIs are due out Thursday 24 July, and lower readings could lead to a sharp reaction from the Euro. EUR/USD spiked to a new record at 1.6038 on Tuesday 15 July but slid back beneath long-term resistance at 1.5905 on Wednesday and channelled for the remainder of the week with neither volume nor momentum building.

The U.K. budget deficit sparked rumours of an impending governmental borrowing spree which sent GBP lower against 15 of the 16 most actively traded currencies. U.K. 2Q2008 real GDP prints Friday 25 July and is widely expected to contract below 1Q2008’s reading of 0.3% although there seems to be no expectation of red ink at this point. EUR/GBP continues to channel between resistance at 0.8032 and a price line rising off early May’s low of 0.7765, with pressure building to the upside, best seen on daily charts. GBP/USD spiked sharply above the psychological 2.0000 level on Tuesday but faded after to close at 1.9979.

As widely expected, the BoC remained in neutral stance and left rates on hold at 3.00%. Strong Canadian terms of trades reports, including manufacturing shipments up 2.7% and wholesale sales up 1.6% in May, pushed CAD higher against 11 of the 16 most actively traded currencies, including that of its major trading partner. CAD/USD edged briefly below 1.0000 but closed the week at 1.0055, still within its established trading range of +/− three cents of parity.

The RBNZ meets Thursday 24 July; although an immediate rate cut is possible it’s more likely to wait until September with CPI in 2Q2008 reaching 1.6%, 4.0% y/y. May retail sales fell 1.2% and second-quarter GDP may also print red. NZD/USD also spiked on Tuesday, to 0.7759, and closed slightly up for the week at 0.7609.