5 Things to Watch This Week: The ECB Meeting, Crypto-Correction, North Korea, Stock Volatility, Dollar Bounce

1.            Will Draghi Finally Show his Cards?

The European Central Bank will hold its monetary meeting on Thursday, and the financial world will be watching closely. The president of the central bank hinted several times on the dialing back of the extremely easy policies, but the bank also expressed that a strong Euro is not welcomed by it. As the momentum of economic numbers has been better in Europe than in the US lately, the common currency surged higher against the Dollar and its other important peers. The ECB is still expected to announce the tapering of its bond-buying program soon, but the timing of the moves and the exact scheduling will be crucial for forex markets, so expect huge moves should Mario Draghi announce any details.
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2.           Cryptocurrencies Entering Next Correction?

The crypto segment has been in a strong uptrend ever since the mid-July bottom, and most of the major coins rose by several 100%. The total value of the market catapulted from $55 billion to around $175 billion in the meantime, and sentiment got overly optimistic, with public interest hitting historic highs. While we expect the megatrend to continue, the market seems ripe for a durable top and an orderly correction. In the crypto world, these corrections are often violent, so leveraged traders should be cautious in the coming period as volatility will likely rise substantially. All eyes are on BTC that led the rally, and will likely be the clue for the coming period as well. For now, primary support held the most valuable coin just below $4500 after the weekend spike lower, but watch for a break below that for a confirmation of the move.
Bitcoin, 4-Hour Chart Analysis
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3.           The World Reacts to the Hydrogen Bomb Test
North Korea conducted a successful nuclear test, and one that was possibly involving a hydrogen bomb, with a magnitude more power than its previous test. While the test doesn’t mean that the country is capable of delivering such a bomb with a ballistic missile, the event is definitely a worrying sign, and could lead to an escalation of the situation, with more sanctions and tensions between the US and China as well. Safe haven assets got bid aggressively in early Monday trading in Asia, with the Yen and Gold surging by close to 1% at the open, while stock futures being down quite substantially too. The next steps of the superpowers could define sentiment globally and could contribute to a risk-off period in the coming weeks.
Gold, 4-Hour Chart Analysis
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4.           September Brings Volatility Again?

Stock markets traditionally get more active post-Labor Day, and we expect this year to be no different in this matter. Trading volumes will likely jump during the holiday-shortened week, especially after the crucial ECB meeting, and volatility basically has one way to move off its recent single digit lows (as measured by the VIX). That said, the exact timing of the likely correction is impossible, and given the recent strength in the major indices, we wouldn’t be surprised by another push higher in US equities. Investors shouldn’t forget about the overvalued state of the market though and should keep their exposure controlled.

5.           Did the Dollar Hit a Major Bottom?

As the EUR/USD pair surged past 1.20 last week, the last remaining Dollar bulls likely threw in the towel, but the wave of selling abruptly stopped and the battered currency bounced back strongly. The Dollar index got another hit on Friday, from the bearish Employment Report, but the Greenback recovered well once again, possibly signaling a more durable bottom, and a vacuum of sellers after the huge drop. The next few weeks will be crucial for the currency, with the much-awaited tax-reform of Trump, and central banks being in the center of attention.
DXY (Dollar Index), Daily Chart Analysis

Key Economic Releases Next Week

DayCountryReleaseExpectedPrevious
MondayUKConstruction PMI52.151.9
MondayUSBank Holiday0.2%0.3%
MondayCANADABank Holiday180,000209,000
TuesdayAUSTRALIARate Decision1.5%1.5%
TuesdayAUSTRALIARBA Monetary Statement––
TuesdayUKServices PMI53.653.8
TuesdayUSFactory Orders-3.1%3.0%
WednesdayAUSTRALIAGDP0.8%0.3%
WednesdayCANADATrade Balance-3.8 bill-3.6 bill
WednesdayUSTrade Balance-44.6 bill-43.6 bill
WednesdayCANADARate Decision0.75%0.75%
WednesdayCANADAMonetary Statement––
WednesdayUSISM Non-Manufacturing PMI55.553.9
ThursdayAUSTRALIARetail Sales0.2%0.3%
ThursdayAUSTRALIATrade Balance0.95 bill0.86 bill
ThursdayUKHalifax HPI0.2%0.4%
ThursdayEUROZONEECB Rate Decision0.00%0.00%
ThursdayCANADABuilding Permits2.2%2.5%
ThursdayEUROZONEECB Press Conference––
ThursdayUSUnemployment Claims245,000236,000
ThursdayUSCrude Oil Inventories–-5.4 mill
FridayJAPANFinal GDP0.7%1.0%
FridayCHINATrade Balance–321 bill
FridayUKManufacturing Production0.3%0.0%
FridayCANADAEmployment Change15,00010,900
FridayCANADAUnemployment Rate6.3%6.3%

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