If you thought this week was volatile....

...then just wait for next week. I mentioned in some of my posts earlier this year about the $ and QE and I also suggested that you should just be careful out there. Well yesterdays move by the Swiss National Bank to unpeg the Swiss franc from the Euro, surprising as it was, seems to be a precursor to the expected full blown QE in Europe.

As you should know this should be scheduled for 22nd January when the ECB next meet and is closely followed by the Greek elections which could see an anti Euro party elected. So even with the increased volatility we have seen so far in January is looks like next week could be even more volatile and possibly even a defining moment for markets this year.

What to look out for? Well the Swiss Central Bank seems to have upped the ante and people are now talking about a trillion euro programme being required from the ECB. On the back of that it is suggested that the Euro will weaken and hence the early move by the Swiss to abandon their peg which was becoming increasingly strained. Unusual times indeed and a bit worrying as the Swiss franc is often seen as a safe haven in troubled times and this is why they unpegged it and are now charging people more to keep their money there.

Against the possible positive effects of QE are the risks that the ECB either doesn't do it or disappoints with the scale of its intervention. In addition to this the Greek election adds another layer of uncertainty which again could either be a positive or negative depending on the outcome and what the new government decides to do. For example their could be relief if the anti Euro party do not win or turmoil if they do and they decide to go for the exit and markets hate uncertainty.

Talking of exits it seems to me with deflation taking hold in Europe if the ECB don't act quickly and in sufficient size either further austerity and cash injections may be required for the likes of Greece, Spain and Italy but they could choose the softer option of defaulting and devaluing by exiting the Euro. Not that likely I guess but still an outside risk.

Meanwhile in markets there was pain from the movement in the Swiss Fran. IG Group took a £30 million hit from losses on clients positions, some of which may not be recoverable. Meanwhile the reverberations continue around the world as a story from Bloomberg called - Casualties From Swiss Shock Spread From New York to New Zealand suggested
“Clients experienced significant losses” after the franc’s surge, FXCM said in a statement dated Jan. 15. That “generated negative equity balances owed to FXCM of approximately $225 million.”

So if the volatility this week has not spooked you already then I would reiterate Let's be careful out there again next week until we see the shape and size of any ECB QE and the outcome of the Greek election. Finally if that is all a bit too short term for you and if you didn't see it already, it is worth checking out John Mauldin's forecasts for the next five years which you can download here.