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The Trading Week: May 16 - May 20

May 15, 2011 11:09 AM ETDIA, EEA, GBB-OLD, GOLD, JYNFF, UDN, USD
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May 14, 2011 (Allthingsforex.com) – With risk aversion making a comeback as the market’s attention shifted back to the debt woes in the Euro-zone, the trading week ahead will keep traders focused on the prospects for Greek debt restructuring, coupled with the U.S. Housing Starts and Existing Home Sales which will offer more details on the state of the housing market in the world’s largest economy.  

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., May 16, 5:00 am, ET. 

The final reading of the European Central Bank’s preferred measure of inflation is expected to confirm the preliminary flash estimate that inflationary pressures in the Euro-zone increased by 2.8% y/y in April, remaining above the bank’s 2.0% comfort level. Rising inflation and ECB rate hike expectations have been supportive for the euro, but the single currency could stay vulnerable if Monday’s Eurogroup meeting of finance ministers opens the door to a “voluntary restructuring” of Greek debt.

2.    GBP- U.K. CPI- Consumer Price Index, the main measure of inflation preferred by the Bank of England, Tues., May 17, 4:30 am, ET.

After a slight pullback to 4.0% y/y in March from 4.4% y/y in February, inflation in the U.K. is expected to stay stubbornly above the Bank of England’s 3.0% ceiling for another month with consumer prices forecast to increase by 4.1% y/y in April. 
3.    EUR- Euro-zone ZEW Economic Sentiment Index, a leading indicator of economic conditions and business expectations, Tues., May 17, 5:00 am, ET.

Despite of the stronger-than-expected Q1 GDP growth in the Euro-zone and Germany, the consensus forecasts are pointing to a decline in the economic sentiment index with a reading of 17.9, compared with 19.7 in the previous month.

4.    USD- U.S. Housing Starts, a leading indicator of housing market activity measuring construction of new residential properties, Tues., May 17, 8:30 am, ET.

Although still very weak, the U.S. housing market could see a small improvement with the housing starts rising to 567K in April from 549K in March, while the building permits remain unchanged at 590K in April.

5.    GBP- Bank of England Monetary Policy Committee Meeting Minutes, a comprehensive report of the central bank’s meeting that could provide an outlook on the economy, interest rates and future monetary policy, Wed., May 18, 4:30 am, ET.

Two weeks after the Bank of England’s decision to keep rates at their record low 0.5% level for another month, the minutes could confirm that the Monetary Policy Committee might not be in a hurry to raise interest rates if the majority of policy makers voted against a rate hike. On the other hand, if more committee members have decided to join the camp of the three “rate hawks”: Andrew Sentence, Spencer Dale and Martin Weale, the market could accelerate the pace of pricing expectations for an interest rate increase in the near future, especially following the hawkish quarterly inflation report in which the Bank of England said that “there is a good chance that inflation could reach as high as 5.0% later this year, and it is more likely than not to remain above the 2% target throughout 2012.”  

6.    USD- U.S. FOMC Meeting Minutes, a detailed record of the Fed’s last monetary policy meeting that may provide an outlook on the economy, inflation and the Fed’s future monetary policy, Wed., May 18, 2:00 pm, ET.

The minutes from the Federal Open Market Committee’s latest meeting would be likely to echo the central bank’s commitment to keep rates “exceptionally low” for an “extended period”, reminding the markets of the Fed’s lack of urgency to exit its ultra-accommodative monetary policy. 

7.    JPY- Japan GDP- Gross Domestic Product, the main measure of economic activity and growth, Wed., May 18, 7:50 pm, ET.

In the aftermath of the devastating earthquake and tsunami, the Japanese economy is forecast to contract by 0.5% q/q in the first quarter of 2011, compared with the 0.3% q/q contraction in Q4 2010. The Japanese economic slowdown should reinforce the Bank of Japan’s position as the least likely central bank to start tightening. 
8.    USD- U.S. Jobless Claims, an important gauge of employment trends and labor market conditions, Thurs., May 19, 8:30 am, ET.  

Drifting away from the 375K level below which economists estimate that jobless applications would need to fall in order to see a significant decline in unemployment, first-time applications for unemployment benefits are forecast to reach 421K from 434K in the previous week. 

9.    USD- U.S. Existing Home Sales, the main gauge of the condition of the U.S. housing market measuring the number of closed sales of previously constructed homes, condominiums and co-ops, Thurs., May 19, 10:00 am, ET.

Following the 3.7% rebound in March from the 8.9% drop in February, the sales of existing homes could strengthen for another month with a reading of 5.22M in April from 5.1M in March. 

10.     JPY- Bank of Japan Interest Rate Announcement, Fri., May 20, expected around 12:00 am, ET.   

With the Japanese economy forecast to contact for two consecutive quarters, the Bank of Japan is expected to maintain the record low benchmark interest rate in a target band between 0% and 0.10%. Although at the last meeting most policy makers voted against the call to increase the Asset Purchase Program by about 5 trillion yen, it would be interesting to see if this time around the bank feels that more quantitative easing might be necessary to stimulate the economy.  

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