This Week's Market Outlook And Overall Trends

 | Jan 19, 2015 03:14AM ET

h2 SNB Shocked Markets, Focus Turns to ECB

The Swiss National Bank shocked the markets by removing the EUR/CHF 1.2 floor last week. The news triggered sharp surge in the Swiss franc with EUR/CHF hitting record low before settling below parity. The shock also hit a number of forex brokers, including the largest retail currency brokage in US, FXCM, which needed USD 300m cash infusion from Leucadio National Corp to maintain normal operation. There were also brokers out of business after the move and some expected more casualties to be announced ahead.

The announcement was just days after SNB officials reiterated the pledge to maintain the cap on the franc, and just two weeks after the central bank implemented negative rates in another surprise move. SNB president Thomas Jordan later defended the decision as he said it was backed by the entire governing board after "intensive discussion" and said that signaling the move ahead of the decision would have "opened the door to speculators".

Here are some additional reports on the SNB:

  • SNB Abruptly Removed EURCHF Floor, Harm to Credibility and Economic Prospect
  • SNB Shocker: EURCHF Peg Comes To An End
  • Swiss Shocker 2.0: After The Dust Settles
  • SNB Exits 1.20 Floor on EUR/CHF
  • CHF Safe Haven Comeback: Why the SNB's Shocking Decision May Hurt the Buck

While it's still to be seen when the dusts caused by the SNB turmoil settle, markets will now turn the main focus to eurozone this week. Main attention would be on ECB and Greek election. Headline inflation just dropped to -0.2% yoy in December and inflation expectations continued to slide. It's now widely expected ECB would finally long-awaited sovereign bond buying program. There were various options for the bone purchase discussed in the markets. But Speigel magazine just reported that ECB would opt for the plan to have national central banks buying their respective countries' bonds, thus, keeping the risk within those countries.

Greece might be excluded from the program as its bond doesn't fulfill the criteria. EUR/USD was dragged down by EUR/CHF and hit an 11 year low against the greenback. The common currency will very likely stay under pressure this week. Here are some reports regarding ECB:

  • ECB to Buy Sovereign Bonds Next Week?
  • ECB to Deliver Aggressive QE

Just ahead of ECB's meeting, let's have a look at some of the euro pairs. EUR/USD is now on the third leg of the correction pattern from 1.6039 (2008 high) and should be targeting 61.8% retracement of 0.8223 to 1.6039 at 1.1209. Near term outlook will stay bearish as long as 1.1754 resistance holds.