Trading Week Outlook: January 31 - February 4, 2011

by: All Things Forex

Another crucial for the fate of the U.S. dollar week ahead will bring a sequence of important economic data from the world’s largest economy, culminating with the U.S. Non-Farm Payrolls and Employment Situation report which could confirm the Fed’s concerns that “the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions.”

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- Euro-zone HICP- Harmonized Index of Consumer Prices, the main measure of inflation, Mon., Jan. 31, 5:00 am, ET.

Inflationary pressures in the Euro-zone are forecast to climb well above the European Central bank’s 2% comfort level, rising by 2.4% y/y in February, compared with 2.2% y/y in the previous month.

2. USD- U.S. Personal Income and Outlays, a measure of the income received and purchases made by consumers, released along with the Personal Consumption and Expenditures Price Index- a leading indicator of inflation preferred by the Federal Reserve, Mon., Jan.31, 8:30 am, ET.

The Fed’s preferred inflation gauge, the core PCE Index, is expected to show subdued inflationary pressures with a slight increase by 0.1% m/m, same as the 0.1% reading in December, while personal spending registers a small increase by 0.6% m/m in January from 0.5% m/m in December.

3. AUD- Reserve Bank of Australia Interest Rate Announcement, Mon., Jan. 31, 10:30 pm, ET.

With the Australian economy slowing, the government proposing a floods reconstruction tax and China growth cooling off, the Reserve Bank of Australia is expected to not be in any hurry to hike rates, keeping the benchmark interest rate unchanged at 4.75%.

4. USD- U.S. ISM Manufacturing Index, a leading indicator of industrial activity, where a reading above or below 50 is the dividing line between economic expansion and contraction, Tues., Feb. 1, 10:00 am, ET.

The U.S. manufacturing sector is expected to register another month of expansion with an ISM index reading of 58.0 in January, a bit lower than 58.5 in December.

5. 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 preliminary estimate for the outcome of the monthly non-farm payrolls, Wed., Feb. 2, 8:15 am, ET.

Private sector payrolls are forecast to increase by up to 145,000 in January, about 50% less than the 297,000 new payrolls in the previous month. Weaker private sector jobs creation could have a negative impact on the overall Non-Farm Payrolls report on Friday.

6. EUR- Euro-zone Retail Sales, an important gauge of consumer spending measuring sales at retail establishments, Thurs., Feb. 3, 5:00 am, ET.

Consumer spending in the Euro-zone is expected to pick up, with retail sales rising by 0.5% m/m in December from -0.8% in the previous month.

7. EUR- European Central Bank Interest Rate Announcement, Thurs., Feb. 3, 7:45 am, ET.

As inflationary pressures in the Euro-zone began to creep above 2% in recent months, the European Central Bank President and other policy makers have taken a more hawkish stance. The ECB is expected to keep the benchmark rate unchanged at 1.0%, but should the central bank hint to the possibility of a less-accommodative future monetary policy and decide to remind the markets of its main inflation-fighting role, the EUR could continue to be supported.

8. 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, Thurs., Feb. 3, 10:00 am, ET.

The ISM Non-Manufacturing Index is expected to show activity in the services industries registering another month of growth with a reading of 57.2 in January, compared 57.1 in December.

9. CAD- Canada Employment Situation and Unemployment Rate, the main gauge of employment trends and labor market conditions, Fri., Feb. 4, 7:00 am, ET.

The Canadian economy is forecast to add up to 18,900 jobs in January, lesser than the 22,000 jobs in the previous month, while the unemployment rate remains 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., Feb. 4, 8:30 am, ET.

Following the FOMC announcement that the U.S. central bank will maintain its ultra-accommodative monetary policy by keeping rates near 0% and continuing the $600 billion quantitative easing program, the Non-Farm Payrolls report is forecast to show a month of stronger job creation as the U.S. economy adds up to 150K jobs in January from 103K in the previous month. However, the unemployment rate could inch higher to 9.5% from 9.4% in December. A mixed jobs report would highlight the reasons behind the Fed’s latest monetary policy decision due to the lack of “significant improvement in labor market conditions.”