Draghi And The German Dragon

Markets seemed to take a breather today. The Dow was up 0.25% on anticipation of stimulus moves by the European Central Bank, and on news that United Health Care and Netflix reported better-than-expected earnings in Q4.

Reports are that the EDB will initiate a bond-buyback program similar to the one already ended by the U.S. Federal Reserve. Insiders are guessing it will be to the tune of €50 billion per month, or roughly US$75 billion. The program would be scheduled to last one year or even more. Those numbers are higher than previously thought.

As we have said many times on The Gold Forecast, Germany is extremely reluctant to be involved with this sort of action. However, it’s reached a point where much more than principle is at stake. The very integrity of the EU is riding on a stimulus package. So, ECB president Mario Draghi is walking a fine line. How much is enough? How much would be too much and scare away the economically ultra-conservative Germans?

"That gets you to 600 billion euros, which is north of expectations, so if in fact the source is credible that's enough to have markets reacting positively; buy the rumor and sell the news," Art Hogan, chief market strategist at Wunderlich Securities, said.

Nevertheless, American markets didn’t react as if they were elected prom queen. The rise in U.S. equities was modest.

Crude oil also rose today, partially on the European news, but partly as some traders are re-testing the bull side of the market.

Gold also found itself in the pre-ECB-meeting doldrums. After a solid statement is released tomorrow, we should see more action in all markets. 

Wishing you as always, good trading,