Market Movers: The Week Ahead

The Fed’s monetary policy meeting and the final decision on financial aid for Greece by the Eurogroup will headline a busy schedule in a week that could become crucial for the future direction of the U.S. dollar and the euro.

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

1. EUR: Germany ZEW Economic Sentiment Index, a leading indicator of economic conditions measuring the outlook of financial experts, Tues., Dec. 11, 5:00 am, ET.

The ZEW institute survey is forecast to show a slight improvement in the economic outlook for the largest economy in the euro-area with a reading of -12.0 in December compared with -15.7 in the previous month.

2. GBP: U.K. Jobless Claims and Unemployment Rate, the main gauges of labor market conditions measuring claims for unemployment benefits and rate of unemployment, Wed., Dec. 12, 4:30 am, ET.

Jobless claims in the U.K. are expected to rise by about 5,000 in November following the 10,100 increase in September, while the unemployment rate inches higher to 7.9% from 7.8% in the previous month. A negative jobs report could weigh on the GBP on expectations of more easing by the Bank of England if the U.K. economic recovery falters.

3. EUR: Euro-zone Industrial Production, the main gauge of industrial activity measuring the output of factories, mines and utilities, Wed., Dec. 12, 5:00 am, ET.

The Euro-zone industrial activity is expected to pick up the pace with a small 0.1% m/m increase in October compared with the 2.5% m/m drop in the previous month.

4. USD: U.S. FOMC- Federal Open Markets Committee Interest Rate Announcement, Wed., Dec. 12, 12:30 pm, ET.

With the U.S. labor market not yet showing the desired consistent improvement and "Operation Twist" expiring at the end of the month, the Fed will be likely to extend its quantitative easing operations into 2013. The size of the Fed’s open-ended QE program will probably be increased at the December meeting to the tune of $45 billion more in Treasuries purchases on top of the $40 billion per month in mortgage securities, and will be adjusted during the new year with more QE if economic conditions deteriorate, and vice versa. Pressure on the USD will mount if the Fed pushes the QE pedal to the metal.

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

In a recent speech, the SNB President Thomas Jordan reiterated that maintaining the franc cap at 1.20 per euro is the “right policy” and the Swiss central bank will more than likely echo this statement following its Q4 meeting. We could see unwinding of CHF long positions if the Swiss National Bank hints that it may be willing to consider additional plans to weaken its currency.

6. EUR: Eurogroup Meeting, Thurs., Dec. 13, all day event.

As the Greek bond buyback ends on the same day, finance ministers from the euro-area have promised to make their final decision on whether Greece should receive its next installment of bailout funding. The meeting could raise uncertainty levels if the financial aid payment to Greece is delayed once again. Recent reports have cited EU sources saying that the Eurogroup might approve only a partial payment. In other words, they could let Greece kick the can down the road for another couple of years through 2014. If this ends up being the outcome of the meeting, the question will remain about how Greece will be able to meet its fiscal challenges in the following years 2015 and 2016. But for the time being, buying extra two years might be enough to calm some nerves and might see the euro benefiting from a sigh of relief that a Greek default has been averted and that the debt-ridden nation will stay in the European Monetary Union.

7. EUR: EU Summit, Thurs., Dec. 13 and Fri., Dec. 14, all day events.

Following the failure of leaders to reach an agreement on the trillion-euro EU budget at their meeting last month, skepticism continues to be the predominant mood in the days leading to this special economic summit. There are clear divisions between members of the 27-nation union with Germany and France at odds with each other. It doesn’t seem like anybody is expecting a clear agreement to be reached during the two days of the summit and some experts are even warning that the event could produce very little. With one diplomat calling it a “lose-lose summit”, the EUR could come under pressure as a result of yet another disappointing gathering of EU heads of state.

8. USD: U.S. Retail Sales, an important gauge of consumer spending measuring sales at retail establishments, Thurs., Dec. 13, 8:30 am, ET.

Consumer spending in the U.S. is forecast to increase by 0.4% m/m in November compared with the 0.3% m/m drop in October.

9. JPY: Japan Tankan Index, a Bank of Japan quarterly survey of large and small businesses considered as the main indicator of economic conditions in Japan, Thurs., Dec. 13, 6:50 pm, ET.

A few days before the Japanese election on December 16, the Tankan survey could sour the mood as the index registers a larger contraction with a reading of -10 in Q4 2012 compared with -3 in the third quarter. The report should serve as a reminder that the Japanese economy stands on the edge of another recession, raising the odds of additional easing at the upcoming Bank of Japan meeting on December 19-20.

10. EUR: Euro-zone Composite PMI- Purchasing Managers Index, a leading indicator of economic conditions measuring activity in the manufacturing and services sectors, Fri., Dec. 14, 4:00 am, ET.

Despite of some small improvements expected, the euro-zone manufacturing and services indexes are forecast to stay in contraction territory below the 50 boom/bust line for another month with manufacturing activity at 46.6 in December from 46.2 in November and services at 47.0 in December compared with 46.7 in the previous month. The report could weigh on the EUR by increasing the probability of a rate cut by the European Central Bank in the first quarter of 2013.