FX Outlook: This Week's Top Ten

As the government of Cyprus finds a last-minute solution to meet the deadline imposed by the European Central Bank, traders will, in the week ahead, focus on the euro whose direction will be driven by the outcome of the political drama in the Mediterranean island nation.

In preparation for the new trading week, here's the outlook for the Top 10 spotlight economic events that will move the markets around the globe.

1. EUR: Cyprus Bailout Deal, Mon., Mar. 25, all day.
After the parliament rejected the proposed levy on bank savings, Cyprus is on a verge of financial system and economic collapse unless the government finds a workable solution to raise 5.8 billion euro to meet the requirement to receive 10 billion euro in bailout funding. The European Central Bank gave Cyprus a deadline to reach an agreement with the “troika” of lenders, the EU, ECB and IMF by the end of the day on Monday. If no deal is made by that time, the European Central Bank will cut off the emergency liquidity to the otherwise insolvent Cypriot banks. As a result, Cyprus could experience a financial meltdown, leading to a potential default and an exit from the euro-zone. Such scenario would be sure to spook investor sentiment and to send the euro lower. On the other hand, if disaster is averted, the single currency could stage a relief rally.

2. USD: U.S. Durable Goods Orders, a gauge of industrial activity measuring orders for durable goods placed with domestic manufacturers, Tues., Mar. 26, 8:30 am, ET.

In January, durable goods orders registered a bigger than expected drop by 4.9% m/m, but are expected to bounce higher by 2.5% m/m in February. The report could start a weekly sequence of upbeat U.S. economic data in line with the recent signs of improvement in the world’s largest economy.

3. USD: U.S. Consumer Confidence, a measure of consumers’ outlook on the economy, Tues., Mar. 26, 10:00 am, ET.

The outlook of U.S. consumers is forecast to remain optimistic with a consumer confidence index reading of 70.3 in March, compared with 69.6 in the previous month.

4. USD: U.S. New Home Sales, an important gauge of housing market conditions measuring sales of new homes, Tues., Mar. 26, 10:00 am, ET.

Contrary to the positive housing starts and existing home sales reports, sales of new homes in the U.S. are forecast to pull back to 430K in February from 437K in January.

5. GBP: U.K. GDP, Gross Domestic Product, the main measure of economic activity and growth, Wed., Mar. 27, 5:30 am, ET.

The final reading of the Q4 2012 GDP is forecast to confirm that the U.K. economy contracted once again by 0.3% q/q, after returning to growth in the third quarter. The report could serve as a reminder of the treat of a triple dip recession in the U.K. and could put the GBP under pressure on expectations that the Bank of England may be forced into additional quantitative easing.

6. USD: U.S. Pending Home Sales, a leading indicator of housing market activity measuring pending home sale contracts, Wed., Mar. 27, 10:00 am, ET.

Following the bigger than expected increase by 4.5% m/m in January, the pending home sales index is forecast to rise by a smaller 0.5% m/m in February.

7. USD: U.S. GDP, Gross Domestic Product, the main measure of economic activity and growth in the world’s largest economy, Thurs., Mar. 28, 8:30 am, ET.

Forecasts point to another upward revision of the Q4 GDP with the U.S. economy growing at a faster pace by 0.4% q/q, compared with a preliminary estimate of -0.1% q/q and a revised estimate of 0.1% q/q. The USD could benefit from a stronger U.S. economic growth report which could raise the odds that the Fed could take the first step toward monetary policy tightening sooner rather than later.

8. JPY: Japan CPI, Consumer Price Index, the main measure of inflation preferred by the Bank of Japan, Thurs., Mar. 28, 7:30 pm, ET.

The Japanese national core inflation gauge is forecast to drop by -0.4% y/y in February from -0.2% y/y in September. With the index sinking deeper into deflation territory and heading further away from the Bank of Japan’s 2% inflation target, the report could accelerate the trend of JPY weakness on expectations that the Bank of Japan might resort to more aggressive measures to fight deflation and to spur economic growth by devaluing its currency.

9. USD: U.S. Personal Income and Outlays, a measure of consumer income and spending, released along with the PCE Price Index- the Fed’s preferred gauge of inflation, Fri., Mar. 29, 8:30 am, ET.

Consumer spending in the U.S. is forecast to increase by 0.4% m/m in February following the 0.8% m/m drop in January, while the core PCE Index registers a small increase by 0.1% m/m, but not enough to change the current course of the Fed’s monetary policy.

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., Mar. 29, 9:55 am, ET.

The preliminary estimate unexpectedly sent the consumer sentiment index lower to 71.8, but the final reading is forecast to bring an upward revision with the index climbing to 73.2 in March.