Jun. 9, 2013 (Allthingsforex.com) - The euro will be closely watched during the upcoming week which could mark a new phase in the euro-area's debt crisis as the German Constitutional Court convenes to debate and make a decision on the legality of the country's participation in bailout funds and sovereign debt purchases.
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. JPY- Japan GDP- Gross Domestic Product, the main measure of economic activity and growth, Sun., Jun. 9, 7:50 pm, ET.
The revised GDP estimate is expected to confirm that the world's third-largest economy returned to growth by 0.9% q/q in the first quarter of 2013 after the flat 0% q/q reading in the final quarter of last year. The negative JPY trend is still intact, but a long overdue price correction has gotten underway in the last couple of weeks and the yen strength could continue if better-than-expected economic data from Japan reduces expectations of the need for additional easing measures by the Bank of Japan.
2. JPY- Bank of Japan Interest Rate Announcement, Tues., Jun. 11, around 12:00 am, ET.
The Bank of Japan will be likely to reaffirm its commitment to open-ended QE until the 2% inflation target is in sight. Although the bank is not expected to step up its efforts at this point, it would be interesting to see if the central bank surprises the market with an announcement of even more aggressive easing due to the recent rapid rise of the yen. Should the Bank of Japan choose to sit on the sidelines, the yen rally could extend further.
3. EUR- Germany Constitutional Court Ruling on Bailouts Participation, Tues., Jun. 11, and Wed., Jun. 12, all day events.
The German Constitutional Court will gather for two days of hearings on the legality of the country's contribution to bailout funds like the European Stability Mechanism and the European Central Bank's OMT bond-buying program. Some experts have already named it "the most important risk event" that could lead to a showdown between Germany and the ECB and could reignite the crisis in the euro-area. In recent years, the court ruled out an injunction intended to freeze the ESM, but at the same time tied politicians' hands by capping Germany's ESM contribution at 190 billion euro. Judges blocked the proposal of a bank license for the ESM, killed off hopes of eurobonds, debt-pooling, or fiscal union by prohibiting the Parliament from "accepting liability for decisions by other states". Although the German high court may not announce its ruling for several weeks or may even pass the decision making to the European Court of Justice where an approval would be much more likely, uncertainty about the outcome of the event could elevate anxiety levels and could increase the pressure on the euro.
4. GBP- U.K. Industrial Production, the main gauge of industrial activity measuring the output of factories, mines and utilities, Tues., Jun. 11, 4:30 am, ET.
Las week's series of stronger Services, Construction and Manufacturing PMIs could be followed by a weaker overall industrial sector data with industrial production forecast to drop by 0.3% m/m in April after rising by 1.0% m/m in March.
5. GBP- U.K. Jobless Claims and Unemployment Rate, the main gauges of labor market conditions measuring claims for unemployment benefits and rate of unemployment, Wed., Jun. 12, 4:30 am, ET.
Jobless claims in the U.K. dropped by 7,300 in March, but are forecast to register a smaller decline by about 6,800 in April, while the unemployment rate stays unchanged at 7.8%. A weaker-than-expected jobs report would increase the odds of more easing by the Bank of England when the new Governor Carney takes his seat in July and could trigger a correction of the pound's recent gains.
6. EUR- Euro-zone Industrial Production, the main gauge of industrial activity measuring the output of factories, mines and utilities, Wed., Jun. 12, 5:00 am, ET.
After rising by 1.0% m/m in March, industrial activity in the euro-zone is forecast to stumble with a 0.2% m/m drop in April. The EUR will not be likely to get a boost from data that fails to instill optimism that the region's economy is on a path to recovery.
7. NZD- Reserve Bank of New Zealand Interest Rate Announcement, Wed., Jun. 12, 5:00 pm, ET.
In a world where competitive currency devaluation has become the norm, the New Zealand central bank will not be in a hurry to start tightening monetary policy. The central bank joined "currency wars" in February with the Governor warning that intervention is being considered as an option to curb the persistent strength of the New Zealand dollar. The Kiwi has recently fallen and could weaken further if the Reserve Bank of New Zealand makes it clear that rates will not rise anytime soon.
8. AUD- Australia Employment and Unemployment Rate, the two main gauges of labor market conditions measuring job creation and unemployment, Wed., Jun. 12, 9:30 pm, ET.
Following April's strong jobs report which showed 50,100 new jobs created, the Australian economy is expected to lose 9,800 jobs in May, while the unemployment rate inches higher to 5.6% from 5.5%. A weak employment report could raise the odds of a rate cut by the Reserve Bank of Australia and could weigh on the Australian dollar.
9. USD- U.S. Retail Sales, an important gauge of consumer spending measuring sales at retail establishments, Thurs., Jun. 13, 8:30 am, ET.
Consumer spending in the U.S. is expected to recover from the disappointing 0.2% m/m drop in April with an increase by 0.3% m/m in May.
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., Jun. 14, 9:55 am, ET.
The preliminary estimate of the U.S. consumer sentiment index is forecast to show further improvement with a reading of 84.9 in June from the four-year high of 84.5 in the previous month. Following the decent Non-Farm Payrolls report last Friday, stronger U.S. economic data in the week ahead could boost the US dollar on expectations that the Fed might begin the "tapering" of its asset purchases in upcoming months.