FX Events To Watch

In the week ahead all eyes will be focused on the Federal Reserve’s monetary-policy decision as last Friday’s disappointing U.S. employment report has increased significantly the odds of a QE3 announcement.

In preparation for the new trading week, here is a list of the Top 10 spotlight economic events that will move the markets around the globe.

1. USD: U.S. Trade Balance of the difference between imports and exports, Tues., Sep. 11, 8:30 am, ET.

A day before the start of the FOMC meeting, the U.S. economic backdrop is not expected to instill much optimism with the trade deficit forecast to widen to $44.7 billion in July, compared with $42.9 billion in June.

2. EUR: Germany Federal Constitutional Court Ruling on the European Stability Mechanism (ESM), Wed., Sep. 12, around 2:00 am, ET.

Germany, the biggest contributor to the permanent bailout fund in the euro-area, will see its Federal Constitutional Court vote on the validity of the European Stability Mechanism (ESM) and the country’s participation in it. The largest economy in the Euro-zone has the biggest, 27% share in the ESM and without a “blessing” by the German court the future of the fund will be in question. With the ESM activation, which was scheduled for early July, already past due, any further delays of the 500 billion-euro fund could see borrowing costs for troubled member states rising and could increase the pressure on the EUR.

3. GBP: U.K. Jobless Claims and Unemployment Rate, the main measures of labor market conditions, Wed., Sep. 12, 4:30 am, ET.

Hiring ahead of the Olympics could lend support to the U.K. labor market numbers for another month with jobless claims rising by only 500 in July after declining by 5,900 in June, while the unemployment rate remains at 8%. An upbeat U.K. employment report could fuel further gains for the GBP against the USD as QE3 expectations weigh on the greenback.

4. NZD: Reserve Bank of New Zealand Interest Rate Announcement, Wed., Sep. 12, 5:00 pm, ET.

The Reserve Bank of New Zealand will not change the course of its existing monetary policy and is expected to keep the benchmark interest rate at the 2.50% level. Governor Alan Bollard would probably express concerns about the persistent strength of the New Zealand dollar, but the impact on the currency from such statement would likely be limited as the recent risk-off sentiment continues to see the Kiwi attracting bids.

5. CHF: Swiss National Bank Interest Rate Announcement, Thurs., Sep. 13, 3:30 am, ET.

Successfully defending the franc cap against the euro for the last year, the Swiss National Bank will confirm its commitment to keep the euro floor and to guard the economy from the negative effects of its strong currency. Last week’s surprising drop in the Q2 2012 GDP coupled with a number of worse than expected economic reports from Switzerland could even prompt the central bank to hint that it stands ready to consider additional measures to weaken the franc if economic conditions deteriorate further.

6. USD: U.S. Jobless Claims, an important gauge of labor market conditions measuring first-time claims for unemployment benefits, Thurs., Sep. 13, 8:30 am, ET.

After dropping by 12K to 365K, the consensus forecasts point to an increase in the weekly claims for unemployment benefits to 370K. Although last week’s drop was the largest in a month, it might not be enough to reduce the probability of a QE3 announcement by the Fed later in the day.

7. USD: U.S. FOMC Interest Rate Announcement, Thurs., Sep. 13, 12:30 pm, ET.

There is no question that the Fed Chairman is prepared to ease monetary policy further and the disappointing U.S. Non-Farm Payrolls data from last week could very well serve as the catalyst that triggers another round of quantitative easing. This is why it would not be surprising to witness a QE3 announcement or some other sort of monetary policy easing such as an extension of the timeframe for record low rates into 2015. The market is already pricing QE3 expectations and the USD has weakened across the board. Should the Fed stop short of deploying QE3 for the time being, the USD might be able take a breather as currency debasement worries get lifted off the greenback's shoulders.

8. EUR: Eurogroup Meeting of Finance Ministers, Fri., Sep. 14, all day event.

Following last week’s ECB bond-buying plan outline, the ball is now in Spain’s court and the Eurogroup meeting could become the perfect venue for the Spanish government to formally request financial aid, especially considering that it was at a previous Eurogroup gathering when Spain pleaded for a bailout of its banks. With finance ministers scheduled to discuss conditions that will be imposed should Spain decide to ask for financial assistance, this two-day event could mark another important phase in the EU debt crisis, raising anxiety levels in the markets and triggering a bout of uncertainty and risk aversion.

9. USD: U.S. Retail Sales, an important gauge of consumer spending measuring sales at retail establishments, Fri., Sep. 14, 8:30 am, ET.

Consumer spending in the U.S. is expected to pull back with retail sales registering a smaller increase by 0.5% m/m in August after rising by 0.8% m/m in July.

10. USD: U.S. Consumer Sentiment, the University of Michigan's monthly survey of 500 households on their financial conditions and outlook of the economy, Fri., Sep. 14, 9:55 am, ET.

The outlook for U.S. consumers is forecast to get slightly worse with a preliminary sentiment index reading of 74.1 in September compared with 74.3 in July.