Mar. 4, 2013 (Allthingsforex.com) - The busy week ahead will bring five monetary policy announcements by major central banks and will culminate with the U.S. Non-Farm Payrolls and Employment Situation report, as traders look for hints of more competitive currency devaluation to come and gauge the state of the U.S. labor market.
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- Eurogroup Meeting, Mon., Mar. 4, all day event.
At their previous meeting, the finance ministers from the euro-zone confirmed that they "would like an independent assessment of the implementation of rules for financial institutions". Once this is satisfactorily completed, the Eurogroup said that it "could look forward to reaching a decision on the financial aid program for Cyprus in March". With allegations of money laundering and other issues in Cyprus complicating the process, the event could raise uncertainty levels if the Eurogroup is not able to reach an agreement on the bailout terms or if it delays its decision until a later date. Coupled with concerns that the political deadlock in Italy may be moving the country closer to reelection, it would not be surprising to see the euro staying under pressure.
2. AUD- Reserve Bank of Australia Interest Rate Announcement, Mon., Mar. 4, 10:30 pm, ET.
With 34 member countries of the Organization for Economic Cooperation and Development contracting in Q4 2012, the Australian economy is feeling the impact of the global slowdown. This is why the Reserve Bank of Australia could continue to warn about currency strength and could ease policy with another 25 bps rate cut, which will reduce the benchmark interest rate to 2.75% from the current 3.00% level. The Australian dollar could decline further if the central bank cuts rates or keeps the door open to more easing in the months ahead.
3. EUR- Euro-zone Services PMI, a leading indicator of economic conditions measuring activity in the services sector, Tues., Mar. 5, 4:00 am, ET.
The chronic contraction in the euro-zone services sector is forecast to continue for another month with the index confirming the preliminary estimate of 47.3 in February, compared with 48.6 in January.
4. USD- U.S. ISM Non-Manufacturing Index, a leading indicator of economic conditions measuring activity in the services sector, Tues., Mar. 5, 10:00 am, ET.
Contrary to the euro-zone services sector, the U.S. Non-Manufacturing Index is forecast to see another month of expansion, although at a slower pace, with a reading of 55.0 in February from 55.2 in January.
5. EUR- Euro-zone GDP- Gross Domestic Product, the main measure of economic activity and growth, Wed., Mar. 6, 5:00 am, ET.
The final Q4 GDP reading is expected to confirm that the recession in the euro-area continued with a third consecutive quarter of contraction by 0.6% q/q in the last quarter of 2012. Released only a day before the ECB meeting, the report could raise the odds that the European Central Bank might be forced to consider additional monetary policy easing, including a potential rate cut in upcoming months. Needles to say, such expectations would not be euro-positive.
6. CAD- Bank of Canada Interest Rate Announcement, Wed., Mar. 6, 9:00 am, ET.
The Bank of Canada policy makers will not be likely to make any changes to their existing monetary policy and will probably leave the benchmark rate at the current 1.0% level. Compared with the rest of the major central banks, the Bank of Canada still remains as the most likely candidate to tighten monetary policy. However, with the world in the midst of a "currency war" and with the global economy slowing, the decision to call the end of the accommodative monetary policy would probably be pushed further into 2014/2015.
7. JPY- Bank of Japan Interest Rate Announcement, Thurs., Mar. 7, around 12:00 am, ET.
It is not a secret that the Bank of Japan is committed to aggressive monetary policy easing and will continue full speed ahead with their open-ended QE program until the 2% inflation target is in sight, as promised at the previous meeting. If the Bank of Japan does not surprise the markets with something that they don't already know, traders could see an opportunity to unwind short yen positions, triggering a long overdue price correction of the yen's losses since last November.
8. GBP- Bank of England Interest Rate Announcement, Thurs., Mar. 7, 7:00 am, ET.
Deteriorating economic conditions in the U.K. have elevated fears of a triple dip recession. The odds of more quantitative easing by Bank of England have been raised on the bank's dovish outlook and after the latest minutes report, which showed three policy makers calling for 25 billion pounds increase in the Asset Purchase Program. Moreover, according to the minutes, even the option of additional rate cuts has once again been placed on the table. As a result, it would not be shocking to witness a decision to the lift size of the Asset Purchase Program from 375 billion to 400 billion pounds in March. The GBP has been in a freefall as the market was pricing these expectations in recent weeks, and could see pressures rising, especially if the economy takes a turn for the worse and the Bank of England gets a step closer to more QE and to cutting rates in the near future.
9. EUR- European Central Bank Interest Rate Announcement, Thurs., Mar. 7, 7:45 am, ET.
As the euro-zone recession deepens with three consecutive quarters of contraction, 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 more time since last summer. But time may be running out soon as the political deadlock in Italy is reminding the markets that the EU debt crisis is far from over and growth in the euro-area is still nowhere to be seen. Although March may not turn out to be the month when we see a 25 bps rate cut, the ECB policy makers will be likely to face such decision in the second quarter of 2013. The EUR is not going to benefit from a central bank leaning towards additional monetary policy easing and could weaken further if a rate cut makes the euro an even stronger contender for the title of preferred funding currency.
10. USD- U.S. Non-Farm Payrolls and Employment Situation, the main indicator of U.S. economic health measuring job creation and unemployment, Fri., Mar. 8, 8:30 am, ET.
The consensus forecasts point to another decent NFP report with the U.S. economy adding 148K jobs in February, compared with 157K in January, while the unemployment rate remains at 7.9%. The greenback could come under pressure if the data surprises to the downside, as weakening job market would mean that the Fed will not be in a hurry to tighten monetary policy anytime soon.