This Market is on the Move

Dec. 17, 2011 (Allthingsforex.com) – Following the Fed’s decision to keep the monetary policy status quo, the week ahead will bring a sequence of U.S. housing and economic growth data, which could instill further confidence in the resilience of the world’s largest economy and could fuel a Christmas rally (provided the headlines from the EU debt crisis do not decide to rain on the market’s parade).  

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- Germany IFO Institute Business Climate and Expectations Index, a leading indicator of economic conditions and business expectations in the Euro-zone’s largest economy, Tues., Dec. 20, 4:00 am, ET.  

In need for stronger growth to avoid a “mild recession”, the largest economy in the Euro-zone could show further weakness as the German IFO index heads lower for another month with a reading of 106.1 in December from 106.6 in November.

2.    USD- U.S. Housing Starts, a leading indicator of housing market activity measuring construction of new residential properties, Tues., Dec. 20, 10:00 am, ET.

First in the series of U.S. housing market data throughout the week, the housing starts are forecast to inch higher to 635K in November from 628K in the previous month.   

3.    JPY- Bank of Japan Interest Rate Announcement, Wed., Dec. 21, around 12:00 am, ET.

With the U.S. dollar erasing a big chunk of its post-intervention gains against the yen but staying above record lows in a range between 77 and 78 yen, the Bank of Japan would not be likely to intervene at these levels. Japan’s central bank is expected to keep the benchmark interest rate in the current 0% to 0.10% target band, but could consider additional quantitative easing as a tool to weaken the yen, while at the same time, stimulating the economy.

4.    GBP- Bank of England Monetary Policy Committee Meeting Minutes, a comprehensive report of the central bank’s meeting that could provide an outlook on the economy, interest rates and future monetary policy, Wed., Dec. 21, 4:30 am, ET.  

After the Bank of England’s decision to keep rates for another month at their record low 0.5% level since March 2009, the minutes could confirm that the Monetary Policy Committee is still open to the idea of additional expansion of its Asset Purchase Program into the New Year. Expectations of more quantitative easing and risk aversion will continue to be risk factors for the GBP.     

5.    USD- U.S. Existing Home Sales, the main gauge of the condition of the U.S. housing market measuring the number of closed sales of previously constructed homes, condominiums and co-ops, Wed., Dec. 21, 10:00 am, ET.

Contributing to next week’s list of upbeat U.S. economic data, the sales of existing homes are expected to gain momentum with an increase of up to 5.2M in November from 4.97M in October.

6.    NZD- New Zealand GDP- Gross Domestic Product, the main measure of economic activity and growth, Wed., Dec. 21, 4:45 pm, ET.

Suffering the impact of floods and an earthquake, the New Zealand economy grew by only 0.1% q/q in Q2, but is expected to pick up the pace by 0.6% q/q in the third quarter of 2011.

7.    GBP- U.K. GDP- Gross Domestic Product, the main measure of economic activity and growth, Thurs., Dec. 22, 4:30 am, ET.

The final reading of the U.K. Q3 GDP should confirm that the U.K. economy grew faster by 0.5% q/q in the third quarter of 2011 following the 0.2% q/q increase in Q2. An upward revision could give the British pound a temporary boost, although risk aversion, weak U.K. economic data and expectations of more quantitative easing by the Bank of England would be a threat to any GBP rally.

8.    USD- U.S. GDP- Gross Domestic Product, the main measure of economic activity and growth in the world’s largest economy, Wed., Dec. 22, 8:30 am, ET.

The third and final reading of the U.S. Q3 GDP would offer an opportunity for a final comparison before the year’s end between the U.S. economic growth and that of other major economies, especially the slowing Euro-zone. The consensus forecasts point to the same 2.0% q/a pace of U.S. growth, as listed in the downwardly-revised previous estimate.

9.    USD- U.S. Consumer Sentiment, the University of Michigan's monthly survey of 500 households on their financial conditions and outlook of the economy, Thurs., Dec. 22, 9:55 am, ET.    

Trending higher in recent months, the U.S. consumer sentiment index is forecast to end the year on a high note with a reading of 68.0 in December compared with the preliminary estimate of 67.7 and up from 64.1 in November.  

10.    USD- U.S. Personal Income and Outlays, a measure of the income received and purchases made by consumers, released along with the Personal Consumption and Expenditures Price Index- a leading indicator of inflation preferred by the Federal Reserve, and U.S. Durable Goods Orders, a leading indicator of economic activity measuring durable goods orders placed with domestic manufacturers, Fri., Dec. 23, 8:30 am, ET.    

The PCE and durable goods reports will wrap up what looks like another week of cautiously optimistic U.S. economic data. Consumer spending in the U.S. is forecast to register a larger increase by 0.3% m/m in November from 0.1% m/m in the previous month, while the Fed’s preferred inflation gauge, the core PCE Index, is expected to show inflationary pressures remaining flat at 0.1% m/m in November, same as the 0.1% m/m reading in October.  

The orders for durable goods are forecast to gain momentum with an increase of up to 3.2% m/m in November, recovering from the 0.5% m/m drop in the previous month.