USD/JPY Recovers from 13-Year Low

The dollar traded mixed on Friday. US retail sales declined for a fifth consecutive month and producer prices fell for a fourth straight month as the recession deepens. The dollar recovered from a 13-year overnight low against the yen as US stocks rose on speculation the Bush Administration will use TARP funds to rescue the US auto industry. The euro was below the 1.34-area resistance as European industrial production dropped more than expected. Sterling fell against the dollar and dropped to a new record low against the euro. The Australian and Canadian dollars declined on increased risk aversion and lower commodity prices. The Federal Reserve is likely to cut its federal funds rate 25 basis points to 0.75% at the 12/16 FOMC rate decision meeting.

The USD/JPY closed lower, after dropping over 3% to 88.18, the lowest level since 1995. The pair fell as risk aversion increased and the Nikkei closed down 5.6%. The pair recovered most of its losses on renewed hopes that the auto bailout will happen despite the failure of the Senate to pass the bill. The risk of intervention also supported the pair after Finance Minister Shoichi Nakagawa told a news conference that excessive exchange rate volatility is undesirable. The USD/JPY is in a clearly defined downtrend. There is resistance in the 93-area. If the 90-area support is broken, the pair could drop significantly. However, that could mean Japanese intervention to sell the yen.