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(Bloomberg) -- How focused is Europe’s equity market on Mario Draghi? Consider that in a week when Switzerland stunned currency traders by dropping its cap on the franc, stocks from London to Paris had their best advance in more than two years.

Not that it was easy: the Euro Stoxx 50 Index swung in an average daily range of 2.8 percent during the week, data compiled by Bloomberg show. January has seen the index’s biggest average intraday swings since 2012 and volatility has jumped 37 percent above the average throughout Draghi’s tenure as European Central Bank president.

Investors took Switzerland’s action on Thursday as evidence the ECB will announce plans to buy government bonds at its Jan. 22 meeting. That speculation shored up German and French stocks even as panic spread after the surge in the franc. Too low a target or too little detail from the ECB would harm confidence, said David Hussey at Manulife Asset Management.

“It’s almost inevitable that whatever Draghi does, there will be a short-term adverse reaction,” said Hussey, head of European equities at Manulife in London. “The risk is that the ECB can’t get agreement about what exactly they will do and when. That means all the specifics might get pushed back again, and the market won’t like that.”

The Euro Stoxx 50 rallied 5.2 percent last week, its biggest advance since November 2012. In the past month, the equity benchmark has failed to hold gains for more than two days straight, causing the VStoxx volatility gauge to surge 62 percent since the ECB’s last meeting on Dec. 4.

Price Swings

Traders are paying more to protect gains in Europe. Euro Stoxx 50 implied volatility, which tracks expectations for price swings, was 12.6 points higher than the measure for the Standard & Poor’s 500 Index on Jan. 9, according to data compiled by Bloomberg on one-month contracts with an exercise price closer to the indexes. That was the largest gap since November 2011.

As of now, the ECB’s stimulus package includes targeted loans, record-low interest rates and the purchase of securitized debt. With consumer prices dropping and the economy struggling to grow, Draghi has said further measures from the central bank may include buying sovereign bonds.

Draghi briefed German policy makers on new stimulus plans under which national central banks would buy bonds issued by their own country in a bid to contain the risks of implementing quantitative easing, Spiegel magazine reported Friday.

ECB policy makers are said to have studied models for buying up to 500 billion euros ($578 billion) of investment- grade assets. Although expectations are high, the ECB could still give investors a pleasant surprise, according Pernille Bomholdt Nielsen at Danske Bank A/S.

Larger Program

“Forecasts are already pretty big but the program is likely to be larger,” said Bomholdt Nielsen, a Copenhagen-based analyst at Danske. “We expect Draghi will announce a plan to buy 750 billion euros and it should run until September 2016. This means the pace of purchases will also be a lot faster than many people are predicting.”

The difference between Europe’s VStoxx Index and the VIX was 11.2 points on Jan. 9, the widest since before Draghi’s 2012 promise to do whatever it took to save the euro reassured investors. For Simon Carter, an equity derivatives strategist at Deutsche Bank AG in London, that spread is here to stay.

“If the ECB disappoints at the next meeting, volatility will go up quickly because you’re taking away something many investors seem to be anticipating,” Carter said. “Many people have been positioning for higher volatility in Europe versus lower volatility in the U.S. This spread is structural, and it’s likely to exist for a lengthy period of time.”

To contact the reporter on this story: Sofia Horta e Costa in London at shortaecosta@bloomberg.net To contact the editors responsible for this story: Cecile Vannucci at cvannucci1@bloomberg.net Trista Kelley, Chris Nagi

Bloomberg