Retail sales dropped by the most since August 2005 as consumers cut spending on cars, furniture, electronics, clothing and sporting goods. Americans are even eating out less and only spending on the necessities, like health care and gas.

With fears of a deep recession that may feel like the depression driving the dollar and equities lower, the latest consumer spending report suggests that GDP growth in the third quarter may be negative. Retail sales dropped every single month in the third quarter and since consumer spending is such a big component of GDP, we may finally see those recessionary growth numbers. Core producer prices increased but headline prices declined. Headline numbers have become just as important as the core numbers, which means that the data today gives the Federal Reserve an excuse to continue cutting interest rates.

Interest rates at 1 percent before the end of the year is a very real possibility. Given the way the futures markets are trading, there is a decent chance that we will see the Dow test 9000 today. This will weigh on USD/JPY and other carry trades. Over the past few weeks, the equity market has been sell-off positive for the dollar but negative for the Japanese yen.

Kathy Lien is Director of Currency Research at GFT, and runs KathyLien.com.