Week ending 2 January 2009, 2008 came to an end with a trading week abbreviated by holidays, light data calendars, and thin trading. Many currency pairs remained in narrow ranges despite the amplification effect of low volatility, while the VIX index eased below 40 and the TED spread fell below 150bps for the first time since the Lehman Brothers bankruptcy in September.

The RBA commodity price index fell −1.3% in December, its third consecutive decline, lead by base metals prices. The AIG PMI printed slightly higher, at 33.7 from 32.7 previous, but remains well below the 50 breakeven level. AUD/USD rose from minor support at 0.6770 and spiked through established resistance at 0.7050 in a “stop hunt,” remaining there to close the week at 0.7090, down 20% for the year.

U.S. December manufacturing PMI printed 32.5 nationally and 34.1 for regional Chicago. The consumer confidence index registered a new historic low in December at 38.0 and the ABC survey slid to −49.

The Eurozone’s December PMI readings printed 33.9 for manufacturing and 41.4 for retail, while German December CPI registered 0.3% m/m and 1.1% y/y. EUR/USD trended down for the week the same amount it trended up the previous one, closing at 1.3852. The 19 December spike to 1.4719 touched the 61.8 Fibonacci level drawn from 15 July’s high of 1.6037 to 28 October’s low of 1.2329.

The BoE meets Thursday and is widely expected to lower rates by as much as 75bps. Mortgage approvals fell to 27K in November and house prices in 4Q2008 fell −16.2% y/y, while December PMI edged higher to 34.9 from 34.5 previous. Most trading action for the week came via GBP, with EUR/GBP rising as high as 0.9802 on 30 December before falling to 0.9435, the 23.6 Fibonacci retracement drawn from 28 November’s low of 0.8234; however, dealers chattered about sustainability at that level with the RSI having remained above 50 for the better part of five weeks on four-hour charts. GBP/USD was tame by comparison, sliding 0.5% for the week and 27% for the year, its worst performance since 1972.

USD/CAD traded flat for the previous two weeks, opening 22 December at 1.2158 and closing 2 January at 1.2152, with future moves dependent upon the price of crude oil; the pair fell 18% for the year. AUD/CAD rose sharply for the week and shows a clear trend reversal on weekly charts, closing at 0.8616, above its established consolidation range.

NZD/USD tested resistance at 0.5860 for the week, closing at 0.5851, down 24% for the year. AUD/NZD trended higher and closed at 1.2111.

USD/JPY eased higher through the week then spiked abruptly to close at 92.26 on Friday, mainly on higher stocks and Treasury yields, and AUD/JPY echoed those gains on declining risk aversion, closing at 65.42, above resistance at 65.65. EUR/JPY traded flat for the week at 127.80.

The Swiss KOF leading indicator collapsed to −39, much weaker than anticipated, from −0.04 previous. USD/CHF and GBP/CHF both rose sharply in the week; however, EUR/CHF continued its three-week decline and spent most of the week beneath resistance at 1.5000, rising to close at 1.5002 on the same closing exuberance shown by the yen crosses.