With many major currency pairs stuck in recently established ranges, the final trading week of Q1 2012 will be likely to bring more of the same, unless some reshuffling of institutional positions before the end of the quarter and a sequence of U.S. and Eurozone economic data manage to provide the much needed catalysts for breakouts.
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., Mar. 26, 4:00 am, ET.
Despite of the jump to 22.3 from 5.4 in the German ZEW investor confidence index and the expected increase in the Ifo index to 109.8 in February from 109.6 in the previous month, the doubts that the Euro-zone economy will be able to avoid a double dip in Q1 2012 still remain.
2. USD - U.S. Pending Home Sales, a leading indicator of housing market activity measuring pending contracts for home sales, Mon., Mar. 26, 10:00 am, ET.
The U.S. housing market seems to be the weakest spot in the economy at the moment and the pending home sales are forecast to do little to disprove this view, with the index rising by a smaller 1.0% m/m in February, compared with the 2.0% m/m increase in the previous month.
3. USD - U.S. Consumer Confidence, a measure of consumers’ outlook on the economy, Tues., Mar. 27, 10:00 am, ET.
Rising energy costs could contribute to a small decline in the consumer confidence index which is forecast to inch lower with a reading of 70.0 in March from 70.8 in February.
4. GBP - U.K. GDP - Gross Domestic Product, the main measure of economic activity and growth, Wed., Mar. 28, 4:30 am, ET.
The final reading of the U.K. GDP is forecast to confirm that the economy contracted by 0.2% q/q in the fourth quarter of 2011. Provided that there are no up or down revisions, the outcome of this report is already priced in and its impact on the GBP may not be very significant.
5. USD - U.S. Durable Goods Orders, an indicator of economic activity measuring orders for durable goods, Wed., Mar. 28, 8:30 am, ET.
After falling by 3.7% m/m in January, the durable goods orders are forecast to pick up by 2.9% m/m in February.
6. USD - U.S. GDP- Gross Domestic Product, the main measure of economic activity and growth in the world’s largest economy, Thurs., Mar. 29, 8:30 am, ET.
Some of the more optimistic forecasts expect an upward revision of the U.S. GDP which could show the economy growing by 3.1% q/a in the fourth quarter of 2011, compared with the second estimate of a 3.0% q/a growth, which was also revised higher. As long as the U.S. economy continues to demonstrate resilience, the USD should benefit from reduced QE3 odds.
7. JPY - Japan CPI- Consumer Price Index, the main measure of inflation preferred by the Bank of Japan, Thurs., Mar. 29, 7:30 pm, ET.
The talk of a 1% inflation target has been a very effective tool for the Bank of Japan in its efforts to weaken the yen. As long as deflation continues to loom over the economy, the Japanese central bank should maintain the ultra accommodative monetary policy of record low rates and could consider additional quantitative easing to keep creating inflationary pressures, which should curb any Japanese yen strength. The core consumer price index is forecast to stay in deflation territory for another month at -0.1% y/y in February, same as the -0.1% y/y reading in January.
8. EUR - Euro-zone Flash HICP- Harmonized Index of Consumer Prices, the main measure of inflation preferred by the European Central Bank, Fri., Mar. 30, 5:00 am, ET.
Inflation was back on the European Central Bank’s radar screen, but it may not stay there for very long with consumer prices forecast to ease again to 2.5% y/y in March from 2.7% y/y in February. Following the disappointing manufacturing and services PMI reports from Germany and the Euro-zone which have put into question the expectations of a Euro-zone recovery in the first quarter of 2012, lower inflationary pressures could raise the odds that the European Central Bank may be forced to consider additional rate cuts in the near future. If this is what the market believes, it would be hard to see such expectations as euro positive.
9. USD - U.S. Personal Income and Outlays, a measure of consumer income and spending, released along with the PCE Price Index- the Fed’s preferred gauge of inflation, Fri., Mar. 30, 8:30 am, ET.
Consumer spending in the U.S. is forecast to register an impressive increase by 0.6% m/m in February from 0.2% m/m in January, while the Fed’s preferred core PCE Price Index pulls back to 0.1% m/m in February from 0.2% m/m in the previous month.
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. 30, 9:55 am, ET.
Compared with the unexpected decline to 74.3 in the preliminary estimate, the sentiment of U.S. consumers could see a slight improvement with a final index reading of 75.1 for the month of March.