The credit crisis flared and institutions fell like dominoes as multiple central banks injected massive amounts of liquidity into financial markets to no avail. Global stock markets slumped and investors fled to quality. Only the U.S. government’s plan to neutralise toxic assets restored investor confidence, and the resulting rally mainly offset the earlier sell-off.

The July Westpac-MI leading index fell to 3.7%, well below trend growth of 4.2% and only prevented from shrinking further by soaring mining profits, and the Westpac-ACCI printed at 50.8, just above the break-even 50 level between growth and contraction. AUD/USD fell from 0.8260 and formed a clear double bottom at 0.7830, broke its neckline at 0.8060, and climbed back to close at 0.8348, all in the same week and best visible on four-hour charts.

The FOMC held interest rates at 2.0%, as widely expected, with liquidity injections serving as a de facto rate cut. The Philadelphia Fed index rose from −12.7 in August to 3.8 in September, its first positive reading since November 2007, offset by a fall in the New York index from 2.8 to −7.4. August industrial production fell by 1.1%, led by a sharp fall in the automotive sector, and capacity utilization dropped to 78.7%. August CPI lowered by −0.4% to 5.4% y/y while housing starts fell by 6.2%, down 33% y/y.

The Eurozone ZEW sentiment indicator rose to −41.1 for September from −55.5 in August. Headline inflation slipped to 3.8% y/y; however, core inflation rose to 1.9%. The trade deficit tripled between May and June to €3bn with imports rising twice as fast as exports. EUR/USD traded rangebound between support at 1.4075 and resistance at 1.44475.

The U.K. 2Q2008 unemployment rate rose to 5.5% and CPI climbed to 4.7% in August from 4.4% in July, with core inflation at 2.0%. Wage growth remains stable at 3.75% with no second-round effects obvious. EUR/GBP trended down for the second week to close at 0.7885, while GBP/USD entered an upward-trending regression price channel to close at 1.8354.

Canadian leading indicators for August rose 0.2% on steady housing starts and household goods purchases. USD/CAD bounced from double resistance at 1.0750 and 1.0810, falling sharply to August’s support level of 1.0420 where it turned again to close at 1.0497. AUD/CAD also formed a double bottom for the week and closed at 0.8764.

The New Zealand 2Q2008 current account deficit widened more than anticipated to NZ$4.62bn. NZD/USD rose at week’s end on resumed carry trades, closing at 0.6886 for a gain of 3.2%, while AUD/NZD fell dramatically from 1.2325 to find support at 1.1815 then rebounded sharply to close at 1.2119.

The BoJ held its official rate unchanged at 0.5%, as anticipated. The July tertiary index, a domestic activity indicator, rose 1.2% despite Japan’s second consecutive quarter of negative GDP growth. USD/JPY also formed a slightly lopsided double bottom, bouncing from 103.50 and 104.00, returning back where it started at 107.80 and closing at 107.25, while AUD/JPY formed a narrowing consolidation triangle between Tuesday’s low of 81.41 and Wednesday’s high of 86.03, breaking up at week’s end to close at 89.55.

The Swiss National Bank held their rates at 2.75%, as anticipated. USD/CHF rolled between 1.0910 and 1.1250, and EUR/CHF also formed a double bottom and closed slightly down for the week.