The FX Week To Come

Economic data from both sides of the Atlantic, culminating with the U.S. Nonfarm Payrolls and Employment Situation report, will kick-start the first trading week of 2013 as investors hope for a last minute “fiscal cliff” solution and look for signs of consistent improvement in the U.S. labor market.

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

1. EUR: Euro Zone Manufacturing PMI, a leading indicator of economic conditions measuring activity in the manufacturing sector, Wed., Jan. 2, 4:00 am, ET.

The contraction in the euro zone manufacturing sector is forecast to continue for another month as the manufacturing index stays below the 50 boom/bust line with a reading of 46.3 in December.

2. USD: U.S. ISM Manufacturing Index, a leading indicator of economic conditions measuring activity in the manufacturing sector, Wed., Jan. 2, 10:00 am, ET.

After a brief drop in contraction territory, the U.S. manufacturing sector is expected to expand with the index rising to 50.2 in December from 49.5 in November.

3. USD: U.S. ADP Employment Report, a measure of job creation in the private sector of the U.S. economy, Thurs., Jan. 3, 8:15 am, ET.

Job creation in the U.S. private sector is forecast to pick up the pace with 134K jobs added in December compared with 118K jobs in November.

4. USD: U.S. Jobless Claims, an important gauge of labor market conditions measuring first-time claims for unemployment benefits, Thurs., Jan. 3, 8:30 am, ET.

With the four-week average at a four and a half year low of 356,750, the U.S. jobless claims are forecast to stay in line with the recent trend of improvement, despite of an anticipated slight increase to 356K from 350K in the previous week.

5. USD: U.S. FOMC Meeting Minutes, a comprehensive report of the Fed’s latest meeting offering outlook on the economy and monetary policy, Thurs., Jan. 3, 2:00 pm, ET.

The minutes from the Federal Open Markets Committee meeting will be likely to reassure the markets of the central bank’s commitment to stay the QE course despite of the firmer economy. The report could weigh on the USD as the minutes offer a reminder that the Fed’s open-ended quantitative easing is bound to continue.

6. EUR: Euro Zone Services PMI, a leading indicator of economic conditions measuring activity in the manufacturing sector, Fri., Jan. 4, 4:00 am, ET.

The Euro zone non-manufacturing sector is expected to contract for another month as the services index remains below the 50 boom/bust line with a reading of 47.8 in December.

7. EUR: Euro Zone HICP-Harmonized Index of Consumer Prices, the main measure of inflation preferred by the European Central Bank, Fri., Jan. 4, 5:00 am, ET.

Inflationary pressures in the euro-area are forecast to subside further to 2.1% y/y in December from 2.2% y/y in November. With the inflation gauge approaching the European Central Bank’s 2% target, inflation is not going to be an obstacle to further monetary policy easing, including a potential rate cut, if conditions in the euro-zone economy continue to deteriorate.

8. CAD: Canada Employment and Unemployment Rate, the main gauges of labor market conditions measuring job creation and unemployment, Fri., Jan. 4, 8:30 am, ET.

After the “blockbuster” 59,300 new jobs added to the economy in November, job creation in Canada is expected to cool off with only 1,000 jobs in December. The unemployment rate is forecast to inch higher to 7.3% in December from 7.2% in the previous month.

9. USD: U.S. Nonfarm Payrolls and Employment Situation, the main indicator of U.S. economic health measuring job creation and unemployment, Fri., Jan. 4, 8:30 am, ET.

The trend of improvement in the U.S. labor market is expected to continue with another decent Non-Farm Payrolls report as the U.S. economy adds 145K jobs in December compared with 146K in November, while the unemployment rate stays unchanged at 7.7%. With unemployment still far from the Fed's recently announced 6.5% target, the greenback could come under pressure if the NFP report improves investor sentiment and reminds the markets that the U.S. central bank's aggressive QE is here to stay.

10. USD: U.S. ISM Non-Manufacturing Index, a leading indicator of economic conditions measuring activity in the services sector, Fri., Jan. 4, 10:00 am, ET.

Although at a slightly slower pace, services sector activity is forecast to expand for another month with an index reading of 54.3 in December from 54.7 in November.

Wishing you a Happy, Healthy and Prosperous New Year 2013!