Top Ten: The Forex Week Ahead

In the light-on-economic-data week ahead, the political drama in Italy will come to the forefront of investors’ attention as the new Italian parliament convenes for its first session following the February election that resulted in a gridlock that shook the financial markets and sent the euro lower.

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. GBP: U.K. Industrial Production, the main gauge of industrial activity measuring the output of factories, mines and utilities, Tues., Mar. 12, 5:30 am, ET.

With fears of a triple-dip recession in the U.K. growing, the report could do little to ease these concerns as the industrial production slows to 0.1% m/m in February compared with the 1.1% m/m increase in the previous month. The GBP should stay under pressure if the U.K. economic data continues to disappoint.

2. EUR: Euro-zone Industrial Production, the main gauge of industrial activity measuring the output of factories, mines and utilities, Wed., Mar. 13, 6:00 am, ET.

Identical to the U.K. report, industrial activity in the Euro-zone is forecast to lose steam with a drop by 0.1% m/m in February after rising by 0.7% m/m in the month before.

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

Consumer spending in the U.S. is forecast to pick up the pace with retail sales rising by 0.5% m/m in February, compared with the small 0.1% m/m increase in January.

4. NZD: Reserve Bank of New Zealand Interest Rate Announcement, Wed., Mar. 13, 4:00 pm, ET.

The Reserve Bank of New Zealand has recently joined “currency wars” with the Governor talking about a possible intervention to curb the persistent strength of the New Zealand dollar. In a world where competitive currency devaluation has become the norm, the New Zealand central bank will not be in a hurry to start tightening monetary policy. The Kiwi could see pressures mounting if the Reserve Bank of New Zealand issues another warning that its currency should not be considered as a “one way bet.”

5. AUD: Australia Employment and Unemployment Rate, the two main gauges of labor market conditions measuring job creation and unemployment, Wed., Mar. 13, 8:30 pm, ET.

The Australian economy is expected to add 10,700 new jobs in February, compared with 10,400 in the previous month, while the unemployment rate inches higher to 5.5% from 5.4%. A weak employment report could raise the odds of a rate cut by the Reserve Bank of Australia and could weigh on the Australian dollar.

6. CHF: Swiss National Bank Interest Rate Announcement, Thurs., Mar. 14, 4:30 am, ET.

As Switzerland’s largest trading partner the euro-zone continues to be mired in recession and as the Italian political deadlock reminds the markets that the debt crisis could flare up again, the Swiss National Bank will find it prudent to maintain the franc cap at 1.20 per euro. The SNB Chairman recently reiterated that this remains the “right policy” and the Swiss central bank will more than likely echo this statement following its 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.

7. EUR: EU Summit, Thurs., Mar. 14 and Fri., Mar. 15, all day events.

EU leaders are due to meet for another special economic summit to discuss measures to spur growth in the region. However, there are clear divisions between members of the 27-nation union on how to achieve that and it is not a surprise to see the markets having low expectations for the outcome of this two-day event. The EUR would not be likely to benefit from yet another unproductive EU Summit.

8. EUR: Italian Parliament First Post-Election Session, Fri., Mar. 15, all day event.

A week after Fitch cut Italy’s credit rating, the new Italian parliament will gather for its first session following last month’s inconclusive election. The Democratic Party is struggling to form a coalition, desperately trying to reach an agreement with Beppe Grillo’s anti-establishment Five Star Movement. However, Grillo has been very clear about his opposition to an alliance with any of the main parties and has said that his movement wants to lead the next Italian government. It seems highly unlikely that a workable coalition will be formed and this could push Italy one step closer to a new election later this year. In other words, we could be looking at months of uncertainty about Italy’s future, which could spook investor sentiment and could lead to rising borrowing costs, risk aversion and more euro weakness.

9. USD: U.S. CPI- Consumer Price Index, the main measure of inflation in the world’s largest economy, Fri., Mar. 15, 8:30 am, ET.

The U.S. inflation gauge is forecast to get closer to the Fed’s 2.5% threshold with a core CPI reading of 2.0% y/y in February, compared with 1.9% y/y in the previous month. The USD could find strength from rising inflationary pressures on expectations that the Fed could start to tighten monetary policy sooner.

10. USD: U.S. Consumer Sentiment, the University of Michigan's monthly survey of 500 households on their financial conditions and outlook of the economy, Fri., Mar. 14, 9:55 am, ET.

The preliminary estimate of the U.S. consumer sentiment index is forecast to show an improvement with a reading of 78.2 in March, compared with 77.6 in the previous month. The report will wrap up another weekly sequence of positive U.S. economic data, which following the stronger Non-Farm Payrolls last week could continue to be supportive for the U.S. dollar.