Week ending 13 February 2009: Renewed risk aversion sent the forex trading market on a volatile ride within narrow ranges as the U.S. economic stimulus and bank rescue initiatives failed to either stimulate or rescue.

The Australian economy added 1.2K jobs in January although the unemployment rate ticked up to 4.8%, and ANZ job advertisements fell −6.3% m/m. January NAB business confidence declined to −32, conditions to −11, while the 4Q2008 reading fell to −42. Westpac consumer confidence registered −4.6%; however, home loans rose 6.4% and investment lending 2.9%. AUD/USD fell 2.6% on the rise in risk aversion, paring losses in late Asian trading on passage of the Australian stimulus package, closing at 0.6578.

U.S. January retail sales rose 1.0% m/m, 0.9% ex-autos, although University of Michigan consumer confidence fell to 56.2 from 61.2 previous. The December trade balance narrowed less than expected to US$39.9Bn.

The Eurozone 4Q2008 GDP contracted −1.5% q/q and 1.2% y/y, led by larger-than-expected drops in Germany and Italy. December industrial production is down −12.0% y/y and February Sentix investor confidence fell to −36.1. EUR/USD consolidated within a narrowing triangle before reverting to its established range between 1.2800 and strong resistance at 1.3070.

The BoE inflation report was unremittingly bleak and confirmed a deep U.K. recession. Unemployment rose for the 12th consecutive month in December to 6.3% and January jobless claims rose 73.8K. The December trade balance narrowed to UK£7.37Bn and January retail sales rose 3.2%. GBP/USD broke its ten-day appreciation streak and declined 2.7% after Friday’s bounce, while EUR/GBP appears to be settling into a trading range between 0.8600 and 0.9070 with further downside potential, closing the week at 0.8946.

Canada’s December trade balance printed a deficit of CA$0.5Bn, the first since 1976. January housing starts dropped −10.9% m/m, new housing prices −0.1%, and motor vehicle sales −14.8% m/m. USD/CAD traded flat for a second week, closing at 1.2345, and AUD/CAD moved lower with increasing volatility, falling from a weekly high at 0.8348 to close at 0.8120.

January REINZ house sales index fell −28.5% y/y from 23.1% previous and NZ PMI ticked down to 42.0. 4Q2008 retail sales ex-inflation fell −0.6%, December retail sales −1.0% m/m, retail sales ex-autos −0.6%, and January card spending by the same amount. NZD/USD rose back above November/December’s support of 0.5200 with range upside at 0.5590, while AUD/NZD held above support at 1.2425.”

The BoJ meets Wednesday, 18 February, and is widely expected to leave rates unchanged at 0.10% and discuss quantitative easing options. The GDP announcement, scheduled for release Sunday, 15 February at 11:30 PM GMT (Monday 10:30 AM Canberra time) is expected to show significant contraction of up to 12.0% annualised. The December trade balance slid further into the red, printing a deficit of JP¥197.9Bn, and the current account narrowed to 125.4Bn. December machine orders are down −26.8% y/y and January machine tool orders −84.4%. The January Eco Watchers survey improved slightly to 22.1 from 17.6 and consumer confidence to 27.0 from 26.7 although housing loans decreased −3.3%. USD/JPY traded flat for the week albeit in a marginally higher range. AUD/JPY lost 3.6% to close at 60.49, and EUR/JPY remains between 119.80 and 113.60, with minor support/resistance at 116.32.