Some knee-jerk reactions was seen after ECB cut key interests rates by 25bps to 1.00% and announced quantitative easing measures which include purchase of up to 60b euro covered bonds denominated in euros and issued in the Eurozone. Nevertheless, Euro strengthened sharply against dollar, yen and sterling as dusts settle, lifted by Trichet's comments that The latest economic data and survey suggest tentative signs of a stabilization at very low levels after a first quarter which was significantly weaker than expected. Interest rate on marginal lending facility is also cut by 50bps to 1.75% while interest rate on deposit facility was left unchanged at 0.25%.

Sterling on the other hand, remains pressured after BoE announced to increase the size of the Asset Purchase Programme by 50b pounds to 125b pounds. MPC expects to take another three months to complete the programme. The decision to keep rate unchanged at 0.5% is widely expected by the ramp up of asset purchase was a surprise to the markets. In the accompanying statement, BoE noted that GDP in UK fell sharply in Q1 but data are showing sign of slowing decline. considerable economic stimulus from easing in monetary and fiscal policy, plus substantial depreciation in sterling, falls in commodity prices and international actions will improve credit availability and lead to recovery. But the timing and strength is highly uncertain. Focus will turn to inflation report on May 13 and meeting minutes on May 20.

Markets will now turn attention to results of Bank stress test which is expected to be released formally after markets close today. There are speculations that Citigroup, REgions FInancial Corp, Bank of America and Wells Fargo will need to raise additional capital.

On the data front, initial jobless claims in US dropped to 601k, lowest in three months. Continuing claims made 14th consecutive record at 6.35m. Q1 non-farm productivity rose 0.% versus expectation of 0.9% while unit labor costs rose 3.3% versus expectation of 2.5%.

Switzerland's CPI rose +0.9% mom in April, better than consensus of +0.6% and -0.3% a month ago, as led by pickup in clothing and shoe prices. However, petroleum prices remained the negative driver. On annual basis, the reading contracted -0.3% following -0.4% decline in March, indicating persistence of deflationary risk. In Germany, factory orders surprisingly rose +3.3% mom in March, the first monthly gain in 7 months, following a -3.1% drop in February. Annual decline was also stabilized at -2.67% , better than market expectation of -35.8% and upwardly revised -3.8% in the previous month, signaling the sharp plunge in orders has been over.

In Australia, unemployment rate unexpectedly dropped to 5.4% in April (consensus: 5.9%, March: 5.7%). 27.3K jobs were added during the month following a 37.2K contraction in March. New Zealand's unemployment rate rose to the 5th consecutive month to a 6-year high at 5% in 1Q09, compared with consensus of 5.3% and 4.7% in the previous quarter while the number of jobs reduced -1.1% during 1Q09 after gaining +0.9% a quarter ago. Japanese Nikkei closed at 9385, up 408 pts or 4.55%.

EUR/JPY Mid-Day Outlook

EUR/JPY's break of 132.85 resistance indicates that rally from 124.35 has resumed, targeting 137.38 high and above. However, note that we're still expecting strong resistance as EUR/JPY approaches 50% retracement of 169.96 to 112.10 at 141.03 and bring reversal. On the downside, below 129.85 support will suggest that rise from 124.35 has completed and will flip intraday bias back to the downside. Further break of 124.35 support will now be an important signal that whole rise from 112.10 has finally completed and will turn short term outlook bearish.

In the bigger picture, there are some interpretations that carries even probability. Whole down trend from 08 high of 169.96 has either bottomed at 113.63 or 112.10 and rise from 112.10 could either be the first leg, the third leg or the whole correction to such medium term decline. But in any case, such rally from 112.10 should terminate between 50% retracement of 169.96 to 112.10 at 141.03 and 61.8% retracement at 147.85 and bring down trend resumption. Based on the time spent on the consolidation so far, below 124.35 will be an early alert that medium term fall is resuming and will turn focus back to 112.10 low for confirmation.

EUR/JPY