With international credit markets non-functional and awaiting U.S. government intervention, the forex trading market paused for much of the week as if taking a deep breath. Fundamental announcements that would normally send currencies reeling were ignored, and many major currency pairs traded sharply higher during the early part of the week then moved sideways within narrow ranges for the remainder. Traders are warned this pattern could continue until the U.S. bailout is finalised.

The RBA’s monetary tightening has successfully reduced demand for autos and homes, with August new motor vehicle sales trending lower for the seventh consecutive month, down −1.4% m/m and −4.8% y/y, and July new home sales dropping −7.2% m/m. AUD/USD rose sharply in the early part of the week then traded within a 200-pip range between 0.8250 and 0.8450, treating its 200-period moving average as a resistance level on four-hour charts.

U.S. 2Q2008 GDP was revised down to 2.8%. The credit crunch is impacting businesses and consumers, with August new home sales falling −11.5% m/m, existing home sales down −2.2%, and durable goods orders down −4.5%, much more than market expectations. Washington Mutual became the largest bank to collapse in U.S. history after depositors withdrew US$16.7bn in the past fortnight; it was subsequently purchased by JP Morgan for US$1.9bn, a bargain price.

The ECB meets Thursday 2 October and is expected to leave rates on hold at 4.25%, with a change in the announcement’s emphasis from inflation concerns to growth. Eurozone PMI readings dropped to 45.3 for manufacturing and 48.2 for services, while industrial new orders rose only 1.0% m/m. The German Ifo index fell dramatically to recessionary levels and HSBC Holdings, Europe’s biggest bank by market value, laid off 1,100 employees in its international investment banking services. EUR/USD gained 600 pips Monday and Tuesday as investors worried over the financial implications of the bailout for the U.S. Treasury, then trended slightly down to close at 1.4612.

U.K. home prices fell −1.0% m/m in September for the fourth consecutive decline and are down −3.3% y/y, while the BBC reports Bradford & Bingley will be nationalised and merger discussions continue between HBOS and Lloyd’s. GBP traded nearly flat, rising 0.4% against USD and falling −0.4% against EUR.

Canadian CPI rose to 4.5% y/y in August while July retail sales rose merely 0.1% m/m, hindered by declines in new car sales. CAD/USD fell beneath its established support level at 1.0420 on Monday and settled into possibly bearish consolidation above its older support level at 1.0300 for the remainder of the week. After bouncing from resistance near 0.8800, AUD/CAD trended gently down and closed the week at 0.8574.

New Zealand posted its second consecutive quarter of negative GDP growth with −0.2% q/q in 2Q2008, as expected; however, the consumer confidence reading for 3Q2008 rebounded sharply, mainly on lower interest rates and petrol prices. NZD/USD consolidated with very low volume, and NZD/AUD rolled between 1.2000 and 1.2300.

The Japanese yen benefited from risk aversion but not hugely, gaining 0.9% against AUD and 1.3% against USD, and USD/JPY shows signs of bearish consolidation on four-hour charts. Similarly, the Swiss franc gained modestly against USD and EUR.