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Trading Week Outlook: Jul. 4 - Jul. 8

|Includes:SPDR Dow Jones Industrial Average ETF (DIA), EEA, GBB, GOLD, JYN, UDN, USD
Jul. 2, 2011 ( – Will the European Central Bank hike rates and can the U.S. labor market make up for the disappointingly low job creation in May will be the main questions on traders’ minds, as the ECB monetary policy meeting and the U.S. Non-Farm Payrolls report take the center stage in a holiday-shortened but busy week ahead.

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.    AUD- Reserve Bank of Australia Interest Rate Announcement, Tues., Jul. 5, 12:30 am, ET.

Since recent economic data has not brought any drastic changes in economic conditions and inflationary pressures, the Reserve Bank of Australia would be less likely to see any urgency to change monetary policy and is expected to keep the benchmark rate at 4.75% in July. On the other hand, if the central bank continues to see a “gradual pick-up in inflation” and GDP growth “above trend for the next few years”, policy makers could leave the door open to “further tightening in monetary policy” that “would be necessary at some point.”

2.    EUR- Euro-zone GDP- Gross Domestic Product, the main measure of economic activity and growth, Wed., Jul. 6, 5:00 am, ET.

The final reading of the Euro-zone GDP is forecast to confirm the preliminary estimate that the economy accelerated by 0.8% q/q in the first quarter of 2011, faster than the 0.3% q/q growth in Q4 2010.
3.    USD- U.S. ADP-Automatic Data Processing Employment Report, a measure of jobs lost or added to the private sector of the economy, also serving as a leading indicator for the outcome of the monthly non-farm payrolls, Wed., Jul. 6, 8:15 am, ET.

With only 38K new jobs created in May, the private sector payrolls are forecast to register a small increase by up to 60K in June. An even lower than expected number could add to the market’s growing concerns about the state of the U.S. job market.

4.    USD- U.S. ISM Non-Manufacturing Index, a leading indicator of economic conditions in the services industries: agriculture, mining, construction, transportation, communications, wholesale trade and retail trade, Wed., Jul. 6, 10:00 am, ET.

The stronger-than-expected reading in the ISM Manufacturing PMI could be followed by a weaker report from the non-manufacturing sector with activity in the U.S. services industries forecast to expand for another month to 54.0 in June from 54.6 in May.  

5.    NZD- New Zealand GDP- Gross Domestic Product, the main measure of economic activity and growth, Wed., Jul. 6, 6:45 pm, ET.

Economic growth in New Zealand is expected to pick up slightly by 0.3% q/q in the first quarter of 2011 from 0.2% q/q in Q4 2010. With risk appetite making a comeback, the NZD could maintain its position as one of the preferred currencies for yield-seekers.

6.    AUD- Australia Employment Situation and Unemployment Rate, the main gauge of employment trends and labor market conditions, Wed., Jul. 6, 9:30 pm, ET.

The Australian economy is forecast to recover from the 22,100 jobs lost in April by adding up to 15,000 new jobs in June and 7,800 in May. The unemployment rate is expected to remain unchanged at the low 4.9% level. 

7.    GBP- Bank of England Interest Rate Announcement, Thurs., Jul. 7, 7:00 am, ET.

After the recent Meeting Minutes made it obvious that the Bank of England is in no hurry to raise interest rates, the July meeting would not be likely to deliver any changes to the existing accommodative monetary policy and the benchmark rate will be left at the low 0.50% level. Not only are the Bank of England rate hike expectations being pushed aside, but the Minutes also revealed that the consideration for additional quantitative easing was now back on the table. Should the U.K. economy take a turn for the worst, the odds for expansion of the bank’s Asset Purchases Program will increase exponentially. If investor sentiment sours again, the lack of urgency to raise rates, coupled with risk aversion and the potential for a new round of quantitative easing by the Bank of England, could become the formula for GBP weakness.

8.    EUR- European Central Bank Interest Rate Announcement, Thurs., Jul. 7, 7:45 am, ET. 

It is not a secret that the market has been pricing another rate hike (or two) by the European Central Bank this year, possibly as early as the July 7 meeting. With ECB sending messages that their inflation-fighting course may not be derailed by the EU debt crisis, we could easily see another 25 bps increase to 1.50% in the benchmark rate. The question is how much of these expectations have already been priced into the EUR/USD exchange rate? After the Greek Parliament's austerity package approval, the EUR relief-rally could continue ahead of the ECB meeting on expectations of an impending rate hike, but a return of investors’ concerns about a potential default event could quickly change things.

9.    CAD- Canada Employment Situation and Unemployment Rate, the main gauge of employment trends and labor market conditions, Fri., Jul. 8, 7:00 am, ET.   

Job creation in Canada is expected to slow down with the Canadian economy forecast to add up to 13,000 new jobs in June from 22,300 in May- significantly below the “blockbuster” 58,300 jobs created in April, while the unemployment rate stays unchanged at 7.6%.      

10.    USD- U.S. Non-Farm Payrolls and Employment Situation Report, one of the most important indicators of economic health, measuring the number of new jobs created or lost in the world’s largest economy, Fri., Jul. 8, 8:30 am, ET.   

Following the daunting reminder of the lack of significant improvement in the U.S. labor market with only 54K new jobs in May, the U.S. Non-Farm Payrolls report could see job creation inching higher with up to 125K jobs added in June, although the unemployment rate is forecast to remain stubbornly high at 9.1%. A weaker-than-expected jobs report could reinforce the Fed’s view of keeping rates low for “extended period” and maintaining its accommodative monetary policy, and could put additional pressure on the USD.