• Following Thursday’s disappointing retail sales and continued credit-market worries, the greenback hit the lowest level since 1995 versus the yen and touched record lows against the euro and Swiss franc. News about severe credit problems at Carlyle Capital and Bear Stearns increased risk aversion. The FX market awaits Friday’s US CPI and sentiment data.
• The USD/JPY, falling to a 13-year low, traded below the important 100 overnight but recovered somewhat as US stocks pared losses. The pair is still in a clear downtrend, trading in tandem with the US stock market. There is support at the 100-handle. The pair is oversold on monthly, weekly and daily bases measured by the relative strength index; however, probably not reversing its downtrend until a bottom in the equity market occurs. The pair has been falling for seven of the last nine months.

Financial and Economic News and Comments

US & Canada

• US retail sales fell a larger-than-expected 0.6% m/m in February, the Commerce Department said. Retail sales excluding autos declined 0.2% m/m. Total sales rose 2.6% y/y and 4.4% y/y excluding autos. Sales excluding autos, building materials, and gas were unchanged in January and rose 3.2% y/y.

• US initial jobless claims were flat at 353,000 in the week ended March 8, the Labor Department said. Continuing claims hit 2.835 million, the highest since the month after Hurricanes Katrina/Rita.

• US import prices rose 0.2% m/m and 13.6% y/y in February, the Labor Department said. Import prices excluding petroleum increased 0.6% m/m and 4.5% y/y. Export prices rose 0.9% m/m and 6.8% y/y.

• President George W. Bush acknowledged the dollar’s decline was not “good tidings.”

Europe

• The ZEW’s German investor economic expectations index increased more than expected to -32.0 in March from -39.5 in February. The gauge reached a 15-year low of -41.6 in January. The current economic situation index fell to 32.1 in March from 33.7 in February.

Asia-Pacific

• Japanese officials tried to talk up yen. Finance Minister Fukushiro Nukaga said: “It’s also a shared perception among the G-7 that excessive exchange-rate moves are undesirable,” adding that he is watching the market carefully. Vice Finance Minister for International Affairs Naoyuki Shinohara said “excessive foreign exchange moves are undesirable.”

• China’s industrial production grew at a slower-than-expected 15.4% y/y for January and February after the worst snowstorm in half a century and slowing exports.

• Australia employment rose a stronger-than-expected 36,700 in February following a 21,400 increase in January, the Bureau of Statistics said. The jobless rate fell to 4.0% in February from 4.1% in January.

FX Strategy Update