5 Things to Watch Next 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.

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

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

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

Day Country Release Expected Previous
Monday UK Construction PMI 52.1 51.9
Monday US Bank Holiday 0.2% 0.3%
Monday CANADA Bank Holiday 180,000 209,000
Tuesday AUSTRALIA Rate Decision 1.5% 1.5%
Tuesday AUSTRALIA RBA Monetary Statement
Tuesday UK Services PMI 53.6 53.8
Tuesday US Factory Orders -3.1% 3.0%
Wednesday AUSTRALIA GDP 0.8% 0.3%
Wednesday CANADA Trade Balance -3.8 bill -3.6 bill
Wednesday US Trade Balance -44.6 bill -43.6 bill
Wednesday CANADA Rate Decision 0.75% 0.75%
Wednesday CANADA Monetary Statement
Wednesday US ISM Non-Manufacturing PMI 55.5 53.9
Thursday AUSTRALIA Retail Sales 0.2% 0.3%
Thursday AUSTRALIA Trade Balance 0.95 bill 0.86 bill
Thursday UK Halifax HPI 0.2% 0.4%
Thursday EUROZONE ECB Rate Decision 0.00% 0.00%
Thursday CANADA Building Permits 2.2% 2.5%
Thursday EUROZONE ECB Press Conference
Thursday US Unemployment Claims 245,000 236,000
Thursday US Crude Oil Inventories -5.4 mill
Friday JAPAN Final GDP 0.7% 1.0%
Friday CHINA Trade Balance 321 bill
Friday UK Manufacturing Production 0.3% 0.0%
Friday CANADA Employment Change 15,000 10,900
Friday CANADA Unemployment Rate 6.3% 6.3%

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Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.