Week ending 20 February 2009: The forex trading week was wracked by risk aversion, rotten worldwide fundamental data, and growing tension regarding U.S. trade protectionism, the spectre of U.S. bank nationalisation, and Western European banking exposure to the Central and Eastern European “C4” nations. Near closing Friday many traders pulled long bets on USD, resulting in significant depreciation as stops were triggered.

The December Westpac leading index fell −1.2%, its second consecutive monthly contraction and an indicator of a potential Australian recession. Retail sales ex inflation for 4Q2008 rose 0.8% q/q, while January new motor vehicle sales are down −1.1% m/m, −16.9% y/y, and merchandise imports slumped −14.2%. USD/AUD slid 2% in the week, repeatedly respecting support at 0.6340 to close at 0.6461.

U.S. January consumer prices printed 0.3% m/m, 0.0% y/y, and 1.7% y/y core; producer prices 0.8% m/m, −1.0% y/y, and 4.2% y/y core; the import price index is down −12.5% y/y. January leading indicators ticked up 0.4%, mainly on money supply and interest rate spreads, and the Philadephia Fed collapsed to −41.3 from −24.3 previous, the Empire to −34.65 from −22.2. December net long-term TIC flows rose US$34.8Bn, total $74.0Bn. January industrial production dropped −1.8% m/m and housing starts fell 100K in one month.

Eurozone February PMIs printed 33.6 manufacturing, 38.9 services, and 36.2 composite, new historic lows; however, the February ZEW survey improved dramatically to −8.7 from −30.8 previous. The December trade balance narrowed to a deficit of €0.7Bn from €5.8Bn previous, revised upward. EUR/USD spiked beneath support at 1.2560 before being caught in the USD selloff, which boosted it to close at 1.2835.

U.K. January consumer prices printed −0.7% m/m, 3.0% y/y, and 1.3% y/y core. January retail sales rose 0.7% m/m and 3.6% y/y, while February Rightmove house prices are down −9.1% y/y. GBP/USD sank early in the week to support at 1.4100 before closing at 1.4424 on the general USD depreciation, while EUR/GBP continues consolidating within the upper half of its trading band between 0.8600 and 0.9075.

Canadian January CPI printed −0.3% m/m and 1.1% y/y, core −0.4% m/m and 1.9% y/y. December manufacturing shipments dropped −8.0% m/m and wholesale sales 3.4%, while the January leading indicator slipped to 0.8% m/m. USD/CAD rose through resistance at 1.2500 but fell with other USD crosses near closing to end at 1.2492, and AUD/CAD consolidated without trend between 0.8000 and 0.8150.

New Zealand’s 4Q2008 producer prices input fell −2.2% while output prices rose 1.4%. NZD/USD continued its downtrend but bounced from support at 0.5000 to close at 0.5114, while AUD/NZD rose from the 1.2470 area through resistance at 1.2600, closing at 1.2623 on pre-weekend position squaring.

The BoJ left rates unchanged at 0.10%; no surprise, as Japan’s 4Q2008 GDP printed −3.3% q/q and −12.7 annualised. December industrial production fell −20.8% y/y and January machine tool orders −84.1%. December leading index rose slightly to 80.0 from 79.8; however, the all-industry activity index contracted −2.7% m/m. USD/JPY rose through last week’s resistance at 92.45 nearly to 6 January’s resistance at 94.65 before falling to close at 93.03. EUR/JPY rose to the top of its current trading range, closing at 119.42, and AUD/JPY traded roughly flat for the week within a 300-pip range, closing at 60.11.