All quiet heading into tomorrow night's ECB decision, gold and silver stronger, equities moderately higher, ASX futures up 17

Tomorrow is a big day for European financial markets. The European Central Bank (ECB) will announce a plan to boost the European economy on Thursday evening Sydney time, aimed at combating low inflation and deflation among member countries, high unemployment and low growth. The world is expecting a lot from the Bank, which has struggled to take action in the past due to a lack of political will, given that there are arguably some European Union members that deserve the support more than others. The ECB will purchase government debt via bonds, among other assets, and the risk inherent in these bonds varies between the different countries, as they all have differing track records of fiscal responsibility, something that the ECB has very little control over. Because of this, Europe has had to get very sick before broad agreement to fix the Union has come about - the market is expecting desperate measures for desperate times.

The big risk tomorrow night is that the ECB disappoints investors by offering up a plan that remains suppressed by politics, and there's a reason why the timing of this announcement could possibly force the ECB to announce something that falls short of the the full monty. Why? Greece has its legislative election this weekend (Sunday) and the Syriza party is polling very well. This is known as the 'anti-austerity party,' which has a left-wing profile and a preference to renegotiate terms of Greek debt (which would be akin to a default event) rather than agree to ECB austerity demands in exchange for further EU support. The ECB will be very reluctant to announce a bond-buying program that includes Greece tomorrow night, given that a political party will quite possibly be elected on Sunday that will aim to break many of the agreements that exist between Greece and the ECB, tied to previous bail-outs.

As written about previously, however, sovereign bond yields among European countries are not following Greece's lead, whereby its bond yields have risen dramatically over the past four months due to the increased threat of default. So the threat that Greek issues will spill over into other bond markets and cause a credit freeze is less concerning now than it has been in the past. As a result this announcement tomorrow will be a hard one to read. If it does come out with something more complex or less impressive than expected, the market might put two and two together and figure that the Greek election has thrown a temporary spanner in the works. At this stage, however, European equity markets and bond markets seem well supported, so maybe the market is telling us that the chance of a negative surprise is low.

One market being fuelled by anticipated ECB action and last week's reckless behaviour of the Swiss National Bank is precious metals. Today's first chart shows US dollar spot gold , which has enjoyed a strong rally so far this year, up 9.5% in January. The second chart shows the relative performance of spot gold (XAUUSD) and spot silver (XAGUSD) in percentage terms from 1 January 2014, and you can see that silver (the black line) is powering higher at a faster rate due to its relative under-performance of gold last year, as traders look to leverage themselves to the diminishing credibility of central banks and the effect that this has on the US, Japanese and European monetary systems.

Today's last chart is of the Australian dollar (AUDUSD, orange line) alongside an ETF tracking the performance of the Reuters/Jefferies CRB commodity index (CRB, black line). This makes it quite easy to examine the contribution of commodity price behaviour to Australian dollar performance; and as energy and metals track sideways presently, as too does the AUDUSD. 

Today’s charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to get your free $100,000 demo account.

Upcoming economic announcements: NZ CPI just out (lower than expected), AU consumer confidence out at 10:30am, UK employment report out at 8:30pm, Bank of Canada rate decision (no change expected) at 2am, all Sydney time.

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