Top 10 Forex Events Outlook: December 3-7, 2012

Five monetary policy announcements by major central banks and the U.S. Nonfarm Payrolls and Employment Situation report will make for an interesting start of the final trading month of the year as the markets keep an eye on the Greek debt buyback plans and the U.S. “fiscal cliff” negotiations.

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. USD- U.S. ISM Manufacturing Index, a leading indicator of economic conditions measuring activity in the manufacturing sector, Mon., Dec. 3, 10:00 am, ET.

A slower pace of expansion would be the likely outcome of the report as the manufacturing index pulls back to 51.4 in November compared with 51.7 in the previous month.

2. AUD- Reserve Bank of Australia Interest Rate Announcement, Mon., Dec. 3, 10:30 pm, ET.

Australia continues to feel the impact of the slowdown of its biggest trading partner China and the global economy. This is why the Reserve Bank of Australia is expected to ease policy further with another 25 bps rate cut, which will reduce the benchmark interest rate to 3.00% from the current 3.25% level. Pressures on the Australian dollar would mount if the central bank cuts rates and keeps the door open to more easing in the months ahead.

3. CAD- Bank of Canada Interest Rate Announcement, Tues., Dec. 4, 9:00 am, ET.

The Bank of Canada policy makers will not be in a hurry to make any changes to their existing monetary policy in the final month of the year and will probably leave the benchmark rate at the current 1.0% level. However, compared with the rest of the major central banks, the Bank of Canada still remains as the most likely candidate to tighten monetary policy in 2013 and the CAD should benefit from such expectations.

4. USD- U.S. ADP Employment Report, a measure of job creation in the private sector of the U.S. economy, Wed., Dec. 5, 8:15 am, ET.

Private sector job creation is forecast to slow a bit with139K jobs added in November compared with 158K jobs in October. An even lower number would serve as a warning sign ahead of Friday’s nonfarm payrolls data.

5. USD- U.S. ISM Non-Manufacturing Index, a leading indicator of economic conditions measuring activity in the services sector, Wed., Dec. 5, 10:00 am, ET.

Still in expansion territory but slowing in recent months, the services index is forecast to continue this trend with a reading of 53.5 in November from 54.2 in October.

6. NZD- Reserve Bank of New Zealand Interest Rate Announcement, Wed., Dec. 5, 3:00 pm, ET.

The Reserve Bank of New Zealand is yet another central bank expected to sit on the sidelines in December, leaving the benchmark interest rate at 2.50%. Policy makers continue to express their concerns about the strong Kiwi dollar, but at the same time reiterate that they should not fight market forces. In other words, the bank’s final gathering for the year might not deliver anything we don’t already know.

7. EUR- Eurozone GDP- Gross Domestic Product, the main measure of economic activity and growth, Thurs., Dec. 6, 5:00 am, ET.

The final Q3 GDP reading is expected to confirm that the euro-area is in a double dip recession with a second consecutive quarter of contraction by 0.1% q/q in the third quarter, after the economy shrank by 0.2% q/q in the second quarter of 2012. The report could raise the odds of more easing by the European Central Bank, including a potential rate cut in upcoming months, and could keep the euro under pressure.

8. GBP- Bank of England Interest Rate Announcement, Thurs., Dec. 6, 7:00 am, ET.

Despite of the recent better than expected economic data from the U.K., the Bank of England's outlook remains dovish which has raised the odds of more quantitative easing. Although not very likely to be announced at the December meeting, it would not be surprising to witness a decision to expand to size of the bank's Asset Purchase Program by another 50 billion pounds in the first quarter of 2013, especially if the economy takes a turn for the worse.

However, for the time being, the central bank will probably maintain the status quo and will also keep its benchmark interest rate unchanged at 0.50%. As long as the Bank of England continues to sit on the QE sidelines, the GBP should remain as a viable alternative to other currencies whose central banks go full speed ahead with more easing.

9. EUR- European Central Bank Interest Rate Announcement, Thurs., Dec. 6, 7:45 am, ET.

With the eurozone officially in a double-dip recession after two consecutive quarters of contraction in Q2 and Q3, the question now is how long can the European Central Bank afford to wait until it resorts to additional monetary policy easing, including another rate cut. After putting the ball in the politicians' court with its OMT bond buying program plan, the European Central Bank has managed to buy a few months time. But time may be running out soon as more signs emerge that the EU debt crisis is still far from over and growth is still nowhere to be seen.

Even if December ends up not being the month when we see a 25 bps rate cut, ECB policy makers will be likely to face such decision in the first quarter of 2013. As we head into the new year, whether the ECB expands its already inflated balance sheet to buy bonds or announces an additional reduction in the benchmark rate, the euro should feel the pressure, especially if a rate cut makes it an even stronger contender for the title of preferred funding currency.

10. USD- U.S. Nonfarm Payrolls and Employment Situation, the main indicator of U.S. economic health measuring job creation and unemployment, Fri., Dec. 7, 8:30 am, ET.

A couple of months of upbeat labor market data, which has lightened the mood ahead of the U.S. election, could be followed by a gloomy NFP report with a month of dismal job creation as the U.S. economy adds only 25K jobs in November compared with 171K in October, while the unemployment rate climbs back to 8.0% from 7.9%. The greenback could come under pressure if deteriorating job market conditions raise the odds of an expansion of the Fed's QE operations in 2013.