U.S. Market January 12, 2001

A strong day for the usd/jpy and the trend continues in the euro/jpy as the greenback traded to 17 month highs vs the jpy. Euro/jpy traded as high as 113.10. The market got off to an early start with stronger than expected retail sales and PPI figures. The Dec. retail sales posted a gain of 0.1 pct. with PPI unchanged, although the core rate was up 0.3 pct. It seems that the continuing focus will remain on the euro and the jpy as the convergence of cross and usd interest may force a further test of the 120.00 area in the usd/jpy bringing the cross higher, especailly now heading into a thin holiday market this weekend in the states. Also, in Japan, recent official comments indicates that their is an inherent belief that there is room ofr usd/jpy to trade higher before there would be any major concer. In any case, the market is building in another U.S. rate cut at month end. In a dealer survey, 50 pct. see a 50 pct cut while 50 pct. see a .25 pct. cut. So. perhaps this holiday weekend will allow certain objectives to be reached more easily, setting the stage for more of a focus on rate differentials on the near horizon.

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