The Week's Top 10 FX Events

The Italian election, coupled with the main measures of economic activity and growth from the United States and the United Kingdom, will make for an interesting and potentially pivotal week ahead for the future direction of the euro, the U.S. dollar and the pound sterling.

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: Italy Election, Sun. and Mon., Feb. 24 and 25, all day events.

Italian voters will take to the polls to elect a new government. With no clear majority winner, we could see a repeat of the events following the Greek election with neither of the parties able to form a coalition, leading to a political deadlock. Such scenario would weigh on investor sentiment and on the euro. On the other hand, majority win for Pier Luigi Bersani’s Democratic Party and the center-left coalition could fuel a euro relief rally.

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

The outlook of U.S. consumers is forecast to remain optimistic, pushing the consumer confidence index higher to a reading of 59.3 in February from 58.6 in the previous month.

3. GBP: U.K. GDP, the main measure of economic activity and growth, Wed., Feb. 27, 4:30 am, ET.

The revised estimate of the Q4 2012 GDP is forecast to confirm that the U.K. economy contracted by 0.3% q/q in the final quarter of last year, after briefly returning to growth by 1.0% q/q in the third quarter. Deteriorating U.K. economic conditions could raise fears of a triple-dip recession and could keep the GBP under pressure.

4. USD: U.S. Durable Goods Orders, a gauge of industrial activity measuring orders for durable goods placed with domestic manufacturers, Wed., Feb. 27, 8:30 am, ET.

Following the December report which registered a jump by 4.3% m/m, orders for durable goods in the U.S. are expected to decline by 4.4% m/m in January. Weak U.S. economic data should keep expectations that the Fed will not be in a hurry to tighten monetary policy anytime soon.

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

Forecasts point to an increase in the pending home sales index by 1.7% m/m in January, following the 4.3% m/m drop in December. However, the recent trend of shrinking inventories could have a negative impact on the overall index reading.

6. CHF: Swiss GDP, the main measure of economic activity and growth, Thurs., Feb. 28, 1:45 am, ET.

As a result of the contraction in the euro-area, which is Switzerland’s main trading partner, the Swiss economy is forecast to become stagnant with 0% q/q GDP reading in the final quarter of last year, compared with 0.6% q/q growth in Q3 2012. An economic slowdown will mean that the Swiss National Bank will see no need to remove the franc cap at 1.20 per euro and might even start to look for additional measures to weaken its currency and to spur growth.

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

Despite of the expectations for an upward revision that could show the economy growing by 0.5% q/a in Q4 2012 instead of the preliminary estimate of a contraction by 0.1% q/a, it is obvious that the world’s largest economy has slowed significantly in the final quarter of last year. If the Q4 GDP number is not revised higher, a weakening U.S. economy would raise a red flag, souring investors’ mood and reducing risk appetite.

8. JPY: Japan CPI, the main measure of inflation preferred by the Bank of Japan, Thurs., Feb. 28, 6:30 pm, ET.

The inflation gauge in Japan is expected to remain in deflation territory with the Nationwide Core CPI forecast to drop by 0.2% y/y in January, same as the -0.2% y/y reading in the previous month. Far from Bank of Japan’s 2% inflation target, the report could keep the yen under pressure on expectations that the central bank’s aggressive monetary policy easing will continue for a long period of time.

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

There is a chronic contraction in the euro-zone manufacturing sector and the revised estimate of the Manufacturing Purchasing Managers Index is forecast to confirm that trend with a reading of 47.8 in February, compared with 47.5 in the previous month.

10. USD: U.S. ISM Manufacturing Index, a leading indicator of economic conditions measuring activity in the manufacturing sector, Fri., Mar. 1, 10:00 am, ET.

Activity in the U.S. manufacturing sector is forecast to expand for another month, but at a slower pace with an index reading of 52.8 in February from 53.1 in January. Should the forecast prove accurate, the report will join a growing list of softer U.S. economic data, elevating concerns of a slowdown in the world’s largest economy.