Weekly Trading Notes – Prepare for volatility ahead of Mario Draghi


  • Although it is something of a quiet week this week, the ECB meeting is dominating market positioning. With the talk of the US monetary policy and the slowdown in China dominating the headlines in recent months, It has been a while since there has been such anticipation in the run up to the ECB meeting. The reason is that following on from such a dovish statement at the previous meeting, is Mario Draghi about to announce an extension to the ECB’s €1.1 trillion asset purchase program that is due to run to September 2015? Traders will need to prepare for volatility.


  • Last month Mario Drahi hinted that the ECB may be ready to extend its QE programme until “we see a sustained adjustment in the path of inflation”. However inflation dipped back into negative territory again last month, whilst the “transmission mechanism” does not appear to be working especially well yet with bank lending remaining low. However, whether Draghi announces anything at this meeting is debatable. However in the least, he is likely to talk up future action and may set out the ECB’s stall for action at the next meeting.
  • The reaction on the euro will be interesting as it has been trending positively against the dollar in recent weeks as the prospects of a US rate hike in 2015 have been knocked by a series of weak US data points. The ECB meeting is likely to cause volatility but when the dust settles I still anticipate that the euro will be moving back towards the range highs again. Aside from the ECB, the anticipation of when the FOMC will hike rates remains the major driver of forex markets. We are now just over a week away from the next FOMC meeting. However before that the Bank of Canada gets to upside the market with its own monetary policy, which is expected to be on the dovish side once more.
  • Commodity prices have found support in recent weeks as the prospects of a 2015 rate hike have receded. Although recent days have seen a slight corrective slide, the outlook for gold has improved significantly as the weak US data has come out and if this continues then this should help to underpin precious metals. The oil price is still trying to find its level, but continual downgrades to demand expectations are not helping, whilst it is estimated that once Iran comes back on line it will add a further 500,000 barrels per day back into the supply. For now the broad consolidation $43.20/$50.90 continues.
  • Earnings season in the US does not seem to be driving sentiment recently, with disappointments continuing. However the reaction to the results of IBM today will be interesting as the PC giant missed revenue expectations and cited concerns over Chinese growth and the strength of the dollar as reasons behind a cautious outlook. Is this a proxy for corporate issues in the States generally?
  • Aside from the ECB, traders will be looking out for the US housing data., but mostly on the final comments of Fed members (Powell, Dudley and Yellen) as the Fed moves into its close period. UK retail sales will be keenly watched as recent strong readings have been positive for sterling.  Flash PMIs for Japan, Eurozone and the US will also be keenly watched.
  • Watch for: FOMC members, ECB monetary policy and US Flash Manufacturing PMI



EUR/USD – Expect volatility around the ECB but also to build higher from $1.1200/$1.1300      

  • There is little real US data to driver proceedings this week so we look towards the ECB. The big focus will be on whether Draghi jawbones the euro lower or not in the ECB press conference on Thursday. Expect volatility around the meeting but the market is almost anticipating this and could lead to an upside move on euro if Draghi does not deliver.
  • The medium term improvement in the technicals suggests buying into weakness on the euro. The key pivot level remains in place at $1.1100 but there is a higher support band $1.1200/$1.1300 which I am still looking at as being a buying zone. The uptick today may already be in the process of forming the next low – however Draghi will be a big caveat.
  • Watch for: FOMC members, ECB monetary policy

GBP/USD – The outlook is consolidating

  • Focus on Fed speakers continues, with Dudley and Yellen the pain people to watch today. However, we still need to be mindful of the Bank of England policy and Mark Carney speaking this week (Wednesday) would be another driver. UK Retail Sales have been strong and supportive of sterling in recent months.
  • A near term consolidation is underway but I am concerned that the set up on the momentum indicators could lead to a limited breakout if one were to be seen. There is a target for a breakout at $1.5600 and a  resistance band at $1.5660. Support is in at $1.5300/$1.5385.
  • Watch for: FOMC members, UK Retail Sales

USD/JPY – Rallies to be sold into  

  • If the US data continues to disappoint then the tendency for near to medium term rallies to fail will continue. There is little significant market moving data though this week and it could be a touch on the quiet side.
  • Near term resistance in the range 119.60/120 is holding back the recovery, whilst a move above 120.30 would be a breakout and seriously question the bearish bias that currently means that a dip back towards 118.30/118.50 is preferred.
  • Watch for: FOMC members, US Flash Manufacturing PMI

Gold – Looking for a higher low $1156/$1170

  • The dollar weakness in recent weeks has driven gold higher. Any continuation of weak us data would further support gold. ETF holdings have picked up recently and have also helped to support the price.
  • The support band $1156/$1170 is key on a medium term basis, whilst a failure of the reaction low at $1151 would be a significant blow for the bulls. I am neutral on gold for now until this higher low comes in and gold starts to build again.
  • Watch for: FOMC members, ECB monetary policy and US Flash Manufacturing PMI

Indices – Recent consolidations need to continue higher to prevent profit taking   

  • S&P 500 – Can the S&P 500 sustain the breakout to multi-week highs? The importance of the reaction low and support around 1990 is growing by the day now. The next big resistance comes in at 2044.
  • DAX Xetra – The DAX is still lagging the FTSE and S&P and needs to now make a move on the resistance at 10,512. Momentum is improving but more still needs to be done. Key support now in at 9890.
  • FTSE 100 – FTSE needs to hold on to the support at 6268 to prevent the good work of the rally turning into a correction once more. Key resistance is now at 6453.



Tuesday – 20th October

  • US – Building Permits/Housing Starts
  • US – FOMC’s Janet Yellen speaking

Wednesday 21st October

  • Canada – BoC monetary policy
  • US Crude Oil Inventories

Thursday 8th October

  • UK – Retail Sales
  • Eurozone – ECB monetary policy + press conference
  • US – Weekly Jobless Claims
  • US – Existing Home Sales

Friday 9th October

  • Japan – Flash Manufacturing PMI
  • Eurozone – Flash Manufacturing PMI
  • Canada CPI
  • US – Flash Manufacturing PMI



Monday 26th October

  • Eurozone – German Ifo Business Climate
  • US – New Home Sales

Tuesday 27th October

  • UK – Q3 GDP (prelim)
  • US – Durable Goods Orders
  • US – Consumer Confidence
  • US – Richmond Fed manufacturing index

Wednesday 28th October

  • Australia – CPI
  • US – Goods Trade Balance
  • US Crude Oil Inventories
  • US – FOMC monetary policy
  • New Zealand – RBNZ monetary policy

Thursday 29th October

  • US – Q3 GDP (Advance)
  • US – Pending Home Sales

Friday 30th October

  • Japan – CPI
  • Japan – BoJ Monetary Policy
  • Eurozone – CPI (flash)
  • Canada – GDP (monthly)
  • US – Employment Cost Index
  • US – Personal Consumption Expenditure
  • US – University of Michigan Sentiment (revised)