Weekly Market Review

Is Draghi about to Pull the Wild Card?
After the Euro hit the $1.27 low, a level not seen since 2013, investors will be watching for Super Mario’s next move. As data in the Eurozone continues to deteriorate, bets are rising that Mario Draghi will finally pull the rabbit of his hat and start a full blown Quantitative Easing program. At the ECB’s October meeting, Draghi has promised that he will shed more light about the extent of liquidly it is about inject.  Investors have high hopes that at this Thursday’s meeting, Draghi will at least hint on the extent that the ECB is willing to go to support the economy with QE in October. If Draghi does signal that the “printing press” will be working at full speed, that is that the ECB will begin printing Euros at a rate of hundreds of billions, pressure on the Euro could mount while indices traded in Euros, such as the DAX , the CAC40 and the STOXX600, could get some relief.


Watch the Buildup
However, while the ECB rate decision will be the wild card for the Euro, the buildup in Euro sentiment will start from the beginning of the week with the release of high profile indicators such as German unemployment and retail sales, Eurozone Inflation and Eurozone GDP. Germany is the largest economy in the region and vastly considered the growth engine of the Eurozone, hence it is critical for Euro sentiment that Germany does well or be, at the very least, OK. This means unemployment must stay at 6.7% and not crawl higher and retail sales must grow (MoM) after a -1.4% contraction in July.  Then comes the Eurozone CPI reading; it is important to remember, the low CPI or inflation reading is what propelled the ECB to embark on an easing policy to begin with, and hence it will be highly watched. If the Eurozone CPI slows further to 0.3% (YoY) that could raise the likelihood of an ECB QE program and could elevate expectations towards Thursday’s decision and speech.


The Non-farm Finale
While most of the week will be dominated by the story of the Euro, and to a lesser extent by the Pound Sterling with UK GDP due, the Non-farms report on Friday might steal the spotlight. With its tendency to jitter markets (in both directions) and its strong impact on Dollar sentiment, the NFP result could dictate how the week will end and, more importantly, the sentiment for the days and weeks after. After rather disappointing housing data and subdued Durable Goods reading, Dollar bulls will seek a healthy rise in Non-farms to prove the US economy is still growing robustly. If figures once again dip below 200K that could turn on a few red alerts for investors and may ignite profit taking in the Dollar and a rebound in Gold and other commodities.


Down to Business
When it comes to the Euro, if data continues to be negative and is followed by a dovish Draghi that could lead to further pressure on the Euro while European indices might at least stabilize. If data is better than expected and Draghi more “vague” that will mainly benefit the Euro until the NFP results are released. When it comes to the Dollar, investors will want their worries over a US slowdown dispelled. Thus if NFP surpasses the 200K mark, the Dollar could maintain its momentum. If not, it will depend on the contracts between the US and the Eurozone. If Draghi is vague while US data disappoints, the Euro might get a relief rally; any other scenario and the EUR/USD might come under pressure whole other pairs trading vs the Dollar will mostly depend on the NFP result.
On the Plate


German Unemployment and Retail Sales (Tuesday) -  If unemployment remains at 6.7% that will be a positive sign, if Retail Sales rise (MoM) after falling in the last reading, that would support the Euro.
UK GDP (Tuesday) – This is the final reading for Q2 GDP. If figures are revised upwards that could benefit Sterling, especially against the Euro, and considering that Scotland will remain within the United Kingdom.
Eurozone CPI (Tuesday) – The most important European data release before the ECB rate decision; if CPI (YoY) slides to 0.3%, that will raise speculation of a dovish Draghi and weaken the Euro.
Eurozone Q2 GDP (Wednesday) – This is the final release of the Eurozone GDP growth figure for Q2. If figures are revised lower from the last reading that could put further pressure on the Euro ahead of Thursday.
ECB Rate Decision (Thursday) – This is the main event for the Euro. If Draghi signals more easing the Euro could face further selling pressure.
Non-farm Payrolls (Friday) – This is the main event for the Dollar. A reading above 200K and the Dollar rally could gain momentum while Gold could be hit.