Weekly Outlook: Top 10 Forex Events

In the week ahead all eyes will focus on Federal Reserve Chairman Ben Bernanke’s speech at the forum of central bankers in Jackson Hole, WY for clues on the next move by the Fed as the markets gauge the odds of a QE3 announcement in September.

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 Business Climate Index, a leading indicator of economic conditions measuring the outlook of businesses, Mon., Aug. 27, 4:00 am, ET.

As a sign that economic conditions in the euro-area continue to deteriorate, the German business climate and expectations index is forecast to head lower for another month with a reading of 102.8 in August compared with 103.2 in July.

2. USD- U.S. Consumer Confidence, a measure of consumers’ outlook on the economy, Tues., Aug. 28, 10:00 am, ET.

The outlook of U.S. consumers is expected to be a bit less optimistic, pushing the consumer confidence index lower to 65.0 in August from 65.9 in the previous month.

3. USD- U.S. GDP- Gross Domestic Product, the main measure of economic activity and growth, Wed., Aug. 29, 8:30 am, ET.

After the preliminary estimate confirmed the expectations of slower economic growth in the second quarter of 2012, the consensus forecasts point to a upward revision of the Q2 GDP number with anticipated 1.7% q/a growth compared with 1.5% q/a. A more upbeat GDP data could lend support to the USD on reduced QE3 odds.

4. USD- U.S. Federal Reserve Beige Book, the Fed’s official assessment on economic conditions in the 12 Federal Reserve districts of the United States, Wed., Aug. 29, 2:00 pm, ET.

The Beige Book report is expected to acknowledge some signs of improvement in the economy in recent months, although not at the desired pace. With the Fed Chairman and the rest of policy makers willing to consider “further action by the Federal Reserve to ease financial conditions and strengthen the recovery”, a grim economic outlook could mean additional monetary policy easing measures that could be announced as early as the Fed’s next meeting in September.

5. EUR- Italy 10-year Bond Auction, Thurs., Aug. 30, around 2:00 am, ET.

As usual, the markets will keep an eye on the Italian government’s sale of its benchmark 10-year bonds in order to find out if investors will demand higher premiums to hold the debt of the troubled nation. Rising borrowing costs and weak demand will not bode well for the euro.

6. USD- U.S. Jobless Claims, an important gauge of labor market conditions measuring first-time claims for unemployment benefits, Thurs., Aug. 30, 8:30 am, ET.

After an increase by 4,000 to 372K, jobless claims are expected to pull back to 370K close to their four-week average around 368K.

7. JPY- Japan CPI- Consumer Price Index, the main measure of inflation preferred by the Bank of Japan, Thurs., Aug. 30, 7:30 pm, ET.

The Japanese national core inflation gauge is forecast to head deeper into deflation territory with a reading of -0.3% y/y in July compared with -0.2% y/y in June. With deflation once again becoming a problem and the economy slowing, the Bank of Japan could feel the urge to consider additional easing, which would weigh on the Japanese yen.

8. EUR- Euro-zone HICP- Harmonized Index of Consumer Prices, the main measure of inflation preferred by the European Central Bank, Fri., Aug. 31, 5:00 am, ET.

Inflationary pressures in the euro-area are forecast to inch higher to 2.5% y/y in July from 2.4% y/y in June. However, the increase will not be large enough to deter the European Central Bank from further monetary policy easing which could be announced as early as the bank’s next meeting on September 6.

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, Fri., Aug. 31, 9:55 am, ET.

Confidence of U.S. consumers is expected to remain above its six-month low with a reading of 73.7 in August compared with 73.6 in the previous month, but still away from the average reading of 89 in the five years before the Great Recession.

10. USD- U.S. Federal Reserve Chairman Ben Bernanke Speech, Fri., Aug. 31, 10:00 am, ET.

Without a doubt, Federal Reserve Chairman Ben Bernanke’s speech at the forum of central bankers in Jackson Hole, WY will be the main event of the week. Given the fact that Mr. Bernanke hinted QE2 during his speech at the exact same event in 2010, many anticipate that the Fed Chairman could reveal that another round of quantitative easing could be in the cards when the Federal Open Markets Committee meets on September 12-13. The USD came under significant pressure following the minutes report from the Fed’s latest meeting which stated that “additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery”. It would not be surprising to see a similar market reaction if the Fed Chairman gives a sign that QE3 might be just around the corner.