• The dollar rose on Friday and pared some of the sharp losses sparked by Wednesday's Fed announcement that it will expand its balance sheet by over 1 trillion buying government and corporate bonds. However, the technical outlook for most of the key currencies improved during the week with their best weekly performance in many years against the greenback. Despite today's stock-market consolidation, the yen fell and its decline will likely continue. The EUR/JPY tentatively broke important resistance. Sterling fell today but broke its downtrend this week. The USD/CAD, unchanged today, broke important support this week indicating further losses. The Australian dollar gained modestly today and advanced for a third week as risk appetite and commodity prices increased.

  • The EUR/USD consolidated gains on Friday following eight straight daily gains. Eurozone industrial production posted the biggest drop since records began in 1986 and German producer-price inflation eased, pressuring the European Central Bank to ease its monetary stance more aggressively. The RSI indicates that the pair is short-term overbought and some further consolidation is possible. There are resistance in the 1.37-area and more serious resistance in the 1.40-area. Strong support exists in the 1.30-area.

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Financial and Economic News and Comments

US & Canada

  • Canada's retail sales advanced a more-than-estimated 1.9% m/m in January to C$33.7 billion ($27.2 billion), the first increase in four months and the most since July 2006, following an upwardly revised 5.2% m/m decrease in December, data from Statistics Canada showed. Retail sales less autos increased a more-than-expected 1.3% m/m to C$26.8 billion, following December's upwardly revised 3.1% m/m decline.

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  • Federal Reserve Chairman Ben S. Bernanke said the Fed is attempting to counter “widening credit spreads” that are blunting efforts to inject cash into the US economy. “Widening credit spreads, more-restrictive lending standards and credit market dysfunction are working against the monetary easing and leading to tighter financial conditions,” Bernanke said at the Independent Community Bankers of America's national convention.

Europe

  • Eurozone industrial production fell a less-than-expected 3.5% m/m in January after a downwardly revised 2.7% m/m decline in December, according to Eurostat. Industrial production dropped a more-than-expected 17.3% y/y, the largest decline since records began in 1986, following December's upwardly revised 11.8% y/y decrease.

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  • Germany's producer prices declined a more-than-expected 0.5% m/m in February after a 1.2% m/m decrease in January, data from the Federal Statistical Office showed. The producer-price inflation rate slowed to 0.9% y/y in February, its slowest pace since September 2007, following January's 2.0% y/y. The figures add to evidence that inflationary pressures in the German economy are easing.

  • European Central Bank council member Axel Weber said the ECB will cut interest rates again. Offering banks loans for longer periods may “contribute to a desired flattening of the interbank yield curve” and “could help to guarantee financing security,” Weber said.

Asia-Pacific

  • China will develop its derivatives market and introduce interest-rate options, People's Bank of China Deputy Governor Liu Shiyu said. “If we don't develop our over-the-counter market for derivatives as early as possible, we may find ourselves lagging behind once the global financial crisis bottoms out,” Liu said, adding that “we should shift from a government-led to a more market-oriented mechanism to encourage financial products innovation.”