A US$700Bn bailout package was finally passed on Friday; however, restoring normalcy to global markets will take time and liquidity remains difficult, keeping bullish pressure on USD and threatening more banks than the five that failed this week in Europe. Fundamental data reflecting a deepening of the global slowdown was mostly ignored.

The RBA meets Tuesday and is anticipated to cut rates by 50bps although a smaller slice is possible. August retail sales rose 0.3% and the trade balance returned a surplus of AU$1364Mn, above market expectations. Private credit rose by 0.5% in August, significantly below trend, and dwelling approvals fell by −3.7% m/m. The Reuters/Jefferies commodities index collapsed 10.4% this past week, its largest fall since at least 1956, and commodities currencies fell also, with AUD one of the hardest hit. AUD/USD dropped beneath its MA-200 on daily charts and its bearish trend intensified, closing the week at 0.7736 for a loss of 6.3%, its worst since 1985.

Although U.S. nonfarm payrolls fell by −159,000, the unemployment rate remained at 6.1%. September manufacturing ISM printed at 43.5, with readings below 45 indicating recessionary levels, and August factory orders fell −4.0%. Nevertheless USD was bid this past forex trading week as demand for funding in that currency sustained bullish pressure, a tendency which may continue until the credit crisis has stabilised.

The ECB left rates at 4.25%, as expected; however the conference emphasized increased downside risks to growth, signalling a shift to an easing bias that could begin November or December. The manufacturing PMI fell to 45 and services to 48.4. The estimate of September CPI slid to 3.6% y/y, August PPI printed at 8.5% y/y, down from an upwardly-revised July reading of 9.2%, and August unemployment rose to 7.5%. Amidst the dollar scramble, EUR/USD collapsed 5.7%, falling and closing beneath its six-year trendline as shown on the weekly chart below:

The BoE meets Thursday and a rate cut is possible although uncertain as August CPI remains elevated at 4.7%. September manufacturing PMI printed at 41.0, services at 46.0, and construction at 38.8. Final 2Q2008 GDP was revised up slightly to 1.5% y/y although flat for the quarter, while increasing capital outflows widened the current account deficit to GB£11.0Bn in the second quarter. The Nationwide house price index is down −12.4% y/y. Although EUR/GBP spiked briefly above 0.8000, it fell 1.7% for the week to close at 0.7776, and GBP/USD fell 3.8% to close at 1.7747, its largest drop since the one induced by George Soros in 1992.

Canadian GDP grew 0.7% m/m in July. Not even this supported USD/CAD, which fell 4.4% in the week and 7.7% ytd, recovering all of its losses from the previous two weeks and closing near strong resistance at 1.0812. AUD/CAD is beneath its MA-200 on daily charts and continuing a bearish price channel begun on four-hour charts the previous week, closing at 0.8364.

New Zealand’s August trade balance narrowed for the third consecutive month to NZD750Mn. NZD/USD fell below its consolidation triangle, best seen on four-hour charts, to loose 3.3%, and AUD/NZD dropped to 1.1677.

The BoJ meets Monday and is universally expected to leave rates unchanged at 0.5%. Japanese September manufacturing PMI printed at 44.3, with August industrial production falling −3.5% m/m. USD/JPY rolled between 103.50 and 106.50 to close roughly flat for the week, and AUD/JPY fell off the table by 6.9% to close at 81.33, a level not seen even during the initial months of the subprime mortgage crisis.