Event-full week ahead: ECB verdict is key

The FX markets are heading into another important week, after sizeable squeezes triggered by the SNB’s stepping out of the EUR/CHF currency peg on January 15th. The fact that the policy decision has been taken so abruptly hints that the SNB should have been heavily skeptical on the upcoming ECB meeting. The ECB will meet on Thursday, January 22nd and is expected to announce the so-expected full-blown QE (sovereign debt purchases). However we believe that the ECB may refrain from taking a concrete step in this month meeting as there are important pending questions around this subject, the leading ones being the size of the operation but also whether the ECB should buy Greek debt (while we are talking about a potential Grexit as Syriza may win general election due on January 25th). This being said, the actual size of the ECB balance sheet (2.1 trillion euros) is still significantly lower than Draghi’s 3 trillion target. This clearly leaves room for massive QE operation. Moreover there are talks that the national central banks may be charged to buy sovereign debt instead of the ECB. In this scenario, the size of the operation may turn out to be more than the 500 billion euros. The markets will be looking at 750bn - 1 trln operation. All in all, the selling pressures on the EUR-complex will likely remain until more clarity on the ECB. EUR/USD sold-off to 1.1460 on Friday and gap-opened at 1.1530 in Asia (after closing at 1.1569 in NY) recovered slightly1.1575. EUR/GBP traded below 0.76. We remain seller on EUR rallies.
Read more Click Here / www.trade4x.net