Oil price retreats in European morning after failing to break Friday's high at 53.65. However, the black gold should remain strong in the near-term as policymakers around the world continue to support economic growth.

The Association of Southeast Asian Nations, together with Japan, China and South Korea, said they will start a $120B foreign currency reserve pool by the end of 2009 to help revive investor confidence. The news also spurred stock market rallies in Asian session. The MSCI Asia Pacific Index gained 4.9% while Australia's S&P2ASX 200 Index rose 3%.

In Europe, equity markets start the day with Germany's DAX Index adding 1.35% and France's CAC 40 Index rising 0.9%. Economic data was mixed today. In Germany, retail sales unexpectedly dropped -1% mom in March, worse than market expectation of an increase of +0.2% and an upwardly revised 0% in February. On annual basis, the reading plunged -1.5%, following a -6.2% decline a month ago. On the other hand, manufacturing PMI in Germany improved to 35.4 in April (initial: 35, March: 32.4) while the reading for the 16-nation Eurozone was also revised slightly upward to 36.8 from initial reading of 36.7.

Gold for June delivery continues to trade around 890. The dollar's movement remains an overhang to gold price's outlook. While we remain positive on the precious metal's long term performance, we believe a sustainable gold rally will come with renewed weakness in the dollar which will probably occur when the Fed announce additional QE policies to stimulus growth.

Unfortunately, as the Fed is still at an initial phase of the previously announced asset purchase program, we doubt if any new measures will be announced soon. Therefore, gold's next rally may probably come later than we previously anticiapted.

According the Fed's balance sheet, the asset purchase activities have been quite slow. Out of the targeted buying of $300B on US Treasuries, $200B on Agencies debts and $1250B on MBS, only around $300B, $200B and $370B on the corresponding instruments have been purchased. Therefore, the policymakers have ample rooms to work on the current QE plan. Another reason we do not expect further easing is that the Fed used a less dovish tone in the previous meeting. With the green shoots appeared and the pace of economic contraction has moderated, the central bank will likely take a 'wait and see' approach instead of rolling out more aggressive plans.