Traders Prepare For Volatile Week Ahead Of ECB Meeting
Today’s Spotlight Market
The Central Banks of both Switzerland and Demark took steps last week to attempt to stem any surge in buying of the Franc and Krone respectively, due to a flight out of the Euro ahead of the European Central Bank (ECB) meeting this week.? Many analysts and traders expect the ECB to finally announce a plan to purchase sovereign debt of member nations in an attempt prevent a move towards deflation. One currency that may see some additional inflows is the British Pound (GBP). While the Euro/Pound crossrate fell through support at 0.7700 last week, a look at a longer-term chart shows this pair traded below 0.6000 as late as 2001. With interest rates in Great Britain positive, as opposed to rates in Switzerland and Demark, it would not be unsurprising if the GBP may look like an attractive alternative for those wanting to divest away from the Eurocurrency. ?
Fundamentals
All eyes will be on European Central Bank (ECB) President Mario Draghi this week, as expectations rise that the ECB will announce some sort of bond buying proposal following a meeting of the Governing Council on January 22nd. Analysts currently expect a bond buying package of at least 550 billion Euro to be announced this week. The extent and process for any type of quantitative easing (QE) is key for many analysts in trying to access the potential success of any bond buying program.
Among the concerns is how to go about purchasing government debt of a group of nations with such divergent financial situations. How does one evaluate the risk of owning the sovereign debt of Greece vs. that of, let?s say, Germany?? Will the Euro nations share the risks jointly or will they be parsed out some way where stronger nations will assume more of the risks off of the back of weaker nations in the common currency union??
There have been some reports that a QE plan being discussed will involve individual countries? Central Banks whom will be responsible for purchases of their own nations? bonds or be responsible for a large portion of any losses tied to the debt of a particular country. The only thing that seems certain is that traders will want to be cautious this week. Expectations for an increase in volatility appear likely both before and following this week?s ECB meeting.
Technical Notes? -? View Today’s Chart
Let?s take a look at the weekly continuation chart for Euro futures, where we first notice that prices are currently in the midst of a downward channel starting at the all-time highs made back in 2008. With front-month Euro futures trading near 1.1550 as of this writing, we note that a test of the lower trendline of the channel would result in additional weakness of over 1000 ticks!
The 14-week RSI is well into oversold territory but off recent lows, with a current reading of 19.04. Trading volume has turned higher, but is still well below volumes seen in 2010 and 2011, which could be a sign that additional selling may appear if prices continue to weaken. The next major support level is seen at the September 2003 low of 1.0773, with resistance found at the 200-week moving average, currently near the 1.3400 price level.?
———————————————————————————————
This article is provided for informational purposes only. No statement in this article should be construed as a recommendation to buy or sell a security or to provide investment advice. The content provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy and completeness. optionsXpress makes every effort to provide timely information to its recipients but cannot guarantee specific delivery times due to factors beyond our control. Derivatives involve substantial risk and are not appropriate for all investors. Please read the?“Disclosure Statement for Futures and Options”?prior to investing in futures or options. For investments using a straddle or strangle options strategy the potential loss is unlimited. Multi-leg option strategies are subject to multiple commissions. Profits may be eroded by the commission expended to open and close the positions and?other risks?apply.