The market maintained its enthusiasm for the yen overnight as the Japanese currency saw new gains against dollar and the euro. The dollar has seen declines of more than 1 yen to touch 104.65, compared with the New York close of 105.50. The euro/yen cross has pushed to record low levels of 100.60. There were no specific new factors behind these moves which are in line with the market's clear objectives of recent days.

U.S. retail sales for February rose 1.1%, roughly in line with market expectations, and should not affect current trading activity.

No

Bank of Japan

intervention was identified, and the strongest statement by Japanese Finance Minister

Kiichi Miyazawa

was: "If moves are too rapid we will act." These comments were largely disregarded by market participants, who are very bullish over the prospects for the yen. In Europe and at the New York opening, the yen was able to hold its best levels and no official action was noted.

In general, the market believes that the Japanese economy is improving and is therefore willing to continue to look positively on the outlook for the yen. Comments by Economic Planning Minister

Taichi Sakaiya

that growth in the first quarter of this year may not be sufficient to reach full-year targets were largely ignored.

Daily movements in the

Nikkei

are playing only a limited role in influencing the yen's behavior. This contrasts with the importance at this point in the dollar's cycle of the trend in the U.S. stock markets.

The euro has eased marginally versus the dollar and is trading at $0.9615 after last night's U.S. close of $0.9645. The possibility that the

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European Central Bank

will raise eurozone interest rates at its meeting Thursday has given some support to the currency. However even a 25-basis-point increase may not be sufficient to change market sentiment and traders are not much impressed by attempts to "talk up" the currency.

In the context of dollar/yen weakness the euro/yen cross has fallen sharply, lately at record lows of 100.60 compared with the New York close of 101.70. Now that the previous all-time low of 100.90 has been taken out the next objective is clearly 100 yen per euro, and this level is less than 1% away.

The market's negative view of sterling has been visible even in the context of dollar weakness. The pound currently trades in London at $ 1.5700 after closing in New York at $1.5755. The euro /sterling cross has traded in a narrow range in Europe weakened slightly to 61.3 pence. The outlook for sterling/dollar remains bearish with technical targets around $1.55.

Dollar/Swiss franc has benefited from the weak dollar and is trading at SF 1.6750. The Australian dollar continues to make modest progress and has edged higher to $0.6160 with a more positive view of the outlook for the Australian economy.

Forex traders remain skeptical towards the euro and dollar and the significant moves overnight have confirmed that this tone is still firmly in place. Recent trading has not suggested any significant revision in these opinions.

In the remainder of this week there are some key U.S. economic announcements, including the

Producer Price Index

on Thursday and the

Consumer Price Index

on Friday, which may suggest a growth of inflationary pressures. Traders believe that any further major declines in the

Dow

and the

Nasdaq

will probably have negative repercussions on the dollar and could contribute to further significant moves in dollar/yen and the euro /yen cross. As noted previously, the euro will have to show much more underlying strength to establish a firm base from which to stage a recovery.