Trading Week Outlook: Jan. 16 - Jan. 20

Jan. 14, 2012 (Allthingsforex.com) – After a couple of days of respite, dark clouds are looming once again as S&P downgraded the credit ratings of France and another eight of the seventeen members of the Euro-zone. The week ahead will keep traders on the edge of their seats with make or break “Troika” negotiations getting underway that will showcase the next act of the Greek drama, while EU leaders scramble to keep the debt crisis from spiraling out of control following the downgrades.   

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

1.    EUR- EU, ECB and IMF Inspectors Negotiations on Financial Aid for Greece, Mon., Jan. 16, all day event.

As uncertainty levels rise in the aftermath of the S&P downgrades, the “troika” of inspectors from the EU, the ECB and the IMF will be back in Athens to discuss the terms of the second Greek bailout. Recent headlines have not been able to instill much optimism on the Greek situation, with the head of sovereign ratings at Fitch calling it “frankly a disaster” and Reuters citing a source saying that the negotiations with creditors are “going badly”. As the Greek drama enters its new act, it would be imperative to find favorable solutions otherwise Greece would be one step closer to exiting the Euro-zone. Such move could open the door to other exits, with Portugal likely being the next candidate, especially after S&P has now rated the country’s debt “junk”. Anxiety and risk aversion should continue to keep the pressure on the euro.   

2.    GBP- U.K. CPI- Consumer Price Index, the main measure of inflation preferred by the Bank of England, Tues., Jan. 17, 4:30 am, ET.

In line with the Bank of England’s Inflation Report forecast, inflationary pressures in the U.K. could continue to subside with the inflation gauge pulling back to 4.2% y/y from 4.8% y/y in the previous month. Lower inflation would make the Bank of England’s policy makers more comfortable with a decision to expand the size of the quantitative easing program in the near future should U.K. economic conditions deteriorate.

3.    EUR- Euro-zone ZEW Economic Sentiment Index, a leading indicator of economic conditions and business expectations, Tues., Jan. 17, 5:00 am, ET.

Although still at depressed levels, the economic sentiment index in the Euro-zone could signal a slight improvement with a lesser decline of -48.7 in December from -54.1 in November.  

4.    CAD- Bank of Canada Interest Rate Announcement, Tues., Jan. 17, 9:00 am, ET.

The Bank of Canada is not expected to deviate its monetary policy from the rest of the major central banks and would be likely to keep its benchmark rate at the 1.0% level.
 
5.    GBP- U.K. Jobless Claims and Unemployment Rate, the main gauges of employment trends and labor market conditions, Wed., Jan. 18, 4:30 am, ET. 

First-time claims for unemployment benefits in the U.K. are forecast to increase by up to 8,200 from 3,000 in the previous month, while the unemployment rate remains unchanged at 8.3%. The GBP could lose more ground against the USD on weak U.K. job market data and risk aversion.       

6.    USD- U.S. Industrial Production, the main gauge of industrial activity measuring the output of factories, mines and utilities, Wed., Jan. 18, 9:15 am, ET.

The U.S. manufacturing output is expected to recover from the 0.2% m/m drop in November with up to 0.5% m/m increase in December.  

7.    NZD- New Zealand CPI- Consumer Price Index, the main measure of inflation, Wed., Jan. 18, 4:45 pm, ET.

With inflationary pressures forecast to rise by another 0.4% q/q, the Reserve Bank of New Zealand could maintain its surprisingly hawkish stance, giving a potential boost to the Kiwi dollar. 

8.    AUD- Australia Employment Situation and Unemployment Rate, the main gauges of employment trends and labor market conditions, Wed., Jan. 18, 7:30 pm, ET. 

Unexpectedly losing 6,300 jobs in November, the Australian economy could make up for the loss by adding up to 10,000 jobs in December, while the unemployment rate is forecast to stay at 5.3%. A return of risk appetite and a positive jobs report could provide the catalyst that the AUD so desperately needs in order to break higher against the USD.

9.    USD- U.S. Housing Starts, a leading indicator of housing market activity measuring construction of new residential properties, Thurs., Jan. 19, 8:30 am, ET.   

Last month’s better-than-expected report could see a follow up with the U.S. housing starts forecast to rise by 692K in December from 685K in the previous month.
 
10.    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, Fri., Jan. 20, 10:00 am, ET.

Following the disappointing drop to 4.42Mn in November, the sales of existing homes in the U.S. are forecast to rebound to 4.7Mn in December.

Resilient throughout Q4 2011, the U.S. economic data has revealed some soft spots with the recent series of weaker retail sales, a significant jump in jobless claims after the Holidays, and a widening trade deficit. In the days leading to the Fed’s two-day meeting on January 24-25, the U.S. economic reports must demonstrate that there is a sustainable and consistent improvement in the world’s largest economy. Otherwise, with the Fed Chairman, the Atlanta and the San Francisco Fed Presidents already warming up to the idea of the Fed “doing more” the market could see rising QE3 odds and could quickly begin to price expectations for additional stimulus at the expense of the USD.