A Worthwhile Habit III

BarroMetrics Views: A Worthwhile Habit III 

Here are my notes on the European QE. The expected announcement is due out on Thursday, Jan 23 at 20:45 HK time. The following news conference at 21:30 (HK time) may also move the markets.

I am not expecting the excessive volatility that we saw in the CHF (unless the figure is above Euro 1T and I don’t expect this number); that said, we could see some wild gyrations if the numbers fail or exceed expectations.

What are expectations and what am I looking to do? See below. The USDCAD retest trade is still on; all today’s price action did was:

  • Move the controlling timeframe up from the 60-mins (60-mni retest only got to 1.2061) to the 290-min.
  • Increase the retest range to 1.20645 – 1.2030.

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[EVERNOTE Begins]

(eurozone QE)

Expectations that the ECB will tomorrow launch QE have driven up demand for government bonds in the Eurozone, pushing yields down to historic lows. Countries in the periphery of moves to take advantage by locking in the low rates.

The ECB is expected to make concessions to mollify German opposition to the QE plan. Draghi is expected to say that bonds bought will remain with national central banks. Previously, losses and profits were shared in accordance with the GDP of the country.

Other Eurozone countries, and the IMF, feared the concession would reduce QE’s effectiveness. 

It is important to note that in Germany, there is still strong opposition to the very idea of QE.

ASSESSMENT 

The expected number is around Euro 580B. A number of Euro 1 trillion has been floated. I think this is unlikely given German opposition. On the other hand, any number of below Euro 500 billion is likely to disappoint the market.

A number above Euro 800 billion should send the euro down strongly. And a number above Euro 1 trillion will cause the sort of move we saw in the CHF.

A number of below Euro 500 billion will probably cause the euro to rally on the basis that German opposition will stifle any serious QE program.

I expect a news on Thursday to be of the expected or surprise category. I cannot see any unexpected news event occurring that I would rate as unexpected.

ACTION

I’m prepared to buy the USDCAD on any dip to the 1.2032 to 1.2010. I do this on the basis that the 60 minute is the controlling timeframe and we would be pulling back within the 6 – 16 bar rule. Any unexpected news on the euro is unlikely to cause more than a intraday, though sharp, correction.

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