Jul. 21, 2013 (Allthingsforex.com) - After several days of trying to gauge the odds of tightening of the Fed's monetary policy, in the week ahead traders will be back to watching a combination of economic data that will offer more details on the state of the world's largest economies.
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. 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, Mon., Jul. 22, 10:00 am, ET.
The report could confirm that the housing market recovery is still on the right track with sales of existing homes forecast to increase to 5.27 million in June, compared with 5.18 million in May.
2. JPY- Japan Trade Balance, an important gauge of economic activity measuring the difference between imports and exports, Tues., Jul. 23, 7:50 pm, ET.
Voters in Japan gave their support to Abenomics this weekend and the weaker yen should contribute to the trend of improvement in the Japanese economy, including the balance of trade which is forecast to show a shrinking deficit of 150 billion yen in June compared with 996 billion yen trade deficit in May. Signs that the economy is getting better could lend some support to the yen on reduced expectations that the government and the Bank of Japan would step up their efforts to devalue the currency and to spur economic growth.
3. EUR- Euro-zone Manufacturing and Services PMI- Purchasing Managers Index, a leading indicator of economic conditions measuring activity in the manufacturing and services sectors, Wed., Jul. 24, 4:00 am, ET.
Although the indexes have been inching higher in recent months, the chronic contraction in the euro-zone's manufacturing and services sectors is expected to continue. The Manufacturing PMI is forecast to stay in contraction territory below the 50 boom/bust line for another month with a reading of 49.1 in July from 48.8 in June, while the Services PMI also heads a bit higher but still below 50 with a preliminary estimate of 48.9 in July from 48.3 in the previous month. A weaker than expected data should weigh on the EUR by confirming expectations that the European Central Bank will remain stuck in an easing mode.
4. USD- U.S. New Home Sales, an important gauge of housing market conditions measuring sales of newly-constructed homes, Wed., Jul. 24, 10:00 pm, ET.
In line with the existing home sales, new home purchases in the U.S. are also expected to increase to 482K in June from 476K in May.
5. NZD- Reserve Bank of New Zealand Interest Rate Announcement, Wed., Jul. 24, 5:00 pm, ET.
With the kiwi dollar pushed lower in recent months and all other central banks assuring the markets that monetary policy will stay accommodative, the Reserve Bank of New Zealand would not be likely to deviate from the current course. The NZD could weaken further if the Reserve Bank of New Zealand still sees its currency as too strong and hints that tightening policy will not be in the cards for the foreseeable future.
6. EUR- Germany IFO Business Climate Index, a leading indicator of economic conditions measuring the outlook of businesses, Thurs., Jul. 25, 4:00 am, ET.
The business outlook in the euro-zone's largest economy is forecast to be more optimistic as the Ifo index rises to 106.3 in July, compared with the reading of 105.9 in the previous month.
7. GBP- U.K. GDP- Gross Domestic Product, the main measure of economic activity and growth, Thurs., Jul. 25, 4:30 am, ET.
Three consecutive quarters of contraction in the U.K. were followed by a quarter of growth in Q3 2012 only to see the economy contracting again by 0.3% q/q in the final quarter of last year. As a result, fears of unprecedented triple-dip recession in the U.K. escalated. Fortunately, in the first quarter of the year, the U.K. economy managed to avoid another recession expanding by 0.3% q/q and is expected to grow even stronger by 0.6% q/q in Q2 2013. The GBP could stage a rally as a result of a better GDP report which coupled with the 9-0 vote against more QE should reduce significantly the odds of more easing by the Bank of England.
8. USD- U.S. Jobless Claims, an important gauge of labor market conditions measuring first-time claims for unemployment benefits, Thurs., Jul. 25, 8:30 am, ET.
The U.S. jobless claims are forecast to reach 339K, staying close to last week's new record low of 334K. Another positive report from the U.S. labor market should keep the USD supported on expectations of a Fed tightening sooner rather than later.
9. JPY- Japan CPI- Consumer Price Index, the main measure of inflation preferred by the Bank of Japan, Thurs., Jul. 25, 7:30 pm, ET.
Two months of rising inflationary pressures could push the Japanese national core inflation gauge to 0.3% y/y in June from 0% y/y in May and -0.4% y/y in April. With the index exiting deflation territory and heading towards the Bank of Japan's 2% inflation target, the report could reduce expectations that the Japanese central bank will need to step up its QE campaign, which could mean less pressure on the yen.
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., Jul. 26, 9:55 am, ET.
The U.S. consumer sentiment index is forecast to be revised slightly higher to 84.0 in July from a preliminary estimate of 83.9. Another week of decent U.S. economic data could keep the markets pricing the start of the Fed tapering of monthly asset purchases in September/October.