[Dan]

In FX, the most notable development by far was the EUR reaction to the ECB announcement. Based on market expectation, the step towards Quantitative Easing would have been consistent with a weaker EUR and this was indeed the knee-jerk reaction. However, after some further violent swings between 1.3250 and 1.3450, EUR/$ finally stabilized at 1.34 - one percent higher than in the morning. EUR/GBP moved to a similar extent, possibly also linked to a larger-than-expected increase in QE by the Bank of England. The MPC's decision to increase total asset purchases by a full £50bn to £125bn was a surprise, in particular in light of the recent improvements in UK survey data.

"Risky" crosses, including most high-yielding currencies were less affected by the EUR and Sterling moves and instead followed the performance of global equity markets. Having rallied in the morning, they came under pressure after the US open, to close broadly flat on the day.

Market reaction to the stress tests has been very limited. Asian FX opened weaker but has subsequently strengthened through the Asian trading session. The major crosses were very lackluster through the Asian session, however as London has opened the EUR, AUD and NZD have all started strengthening.

After the market close yesterday, the much awaited results of the Supervisory Capital Assessment Program (SCAP) aka the "Stress Test" were released. Well telegraphed, the report notes that their "adverse scenario" entails $600bn in losses over the next two years at the 19 that were subject to this examination. These estimated losses translate to a loan loss rate of 9.1%, higher than at any time since 1920 and nearly matched only in the mid-1930s. Following a sharp financials sell off during the day, some of the Bank Holding Companies in question bounced.