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Trading Week Outlook: May 7 - May 11

May 6, 2012 (Allthingsforex.com) - As a result of an economic calendar light on crucial economic data from both sides of the Atlantic, we expect risk to be the dominant driver for the markets and the major currencies in the week ahead.

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- Elections in France and Greece, Sun., May 6, all day event.

Political uncertainty would be likely to cause market jitters and should keep the pressure on the single currency. Current polls suggest the potential for a fractional government in Greece which could create instability and might force another election within the next month or two, adding to the uncertainty about the future of the debt-ridden nation and its commitment to follow the requirements of its second bailout package.

2. CHF- Swiss CPI- Consumer Price Index, Mon., May 7, 3:15 am, ET.

We expect the Swiss inflation report to demonstrate that despite of the recent month over month increase in the inflation gauge, deflation continues to be an issue for the Swiss economy, increasing the odds of the need for additional action by the Swiss National Bank to weaken the franc. The consumer price index is forecast to inch higher by a smaller 0.2% m/m in April after rising by 0.6% m/m in March.

3. JPY- Current Account Balance, Wed., May 9, 7:50 pm, ET.

In January, Japan registered its biggest monthly current account deficit since 1985 with a shortfall of 437 billion yen. The account surplus has been a backbone of yen strength throughout the past few decades. Because of the surplus Japan does not need to rely on foreign purchases of government bonds. However, following the January report, investors began to question the country's ability to handle an already massive amount of debt which exceeds 200% of GDP. Japan is forecast to ring a smaller current account of about 1.44 trillion yen in March compared with 1.17 trillion in the previous month.

4. AUD- Australia Labor Force Survey, Wed., May 9, 9:30 pm, ET.

Compared with the creation of 44K jobs in March, the Australian labor market is forecast to lose up to 5,000 jobs in April, while the unemployment rate inches higher to 5.3% from 5.2%. The AUD could continue to feel the pressure as a result of a weak employment report.

5. GBP- U.K. Industrial Production, Thurs., May 10, 4:30 am, ET.

The report could become a risk event for the GBP with forecasts pointing to a mixed bag of data. The overall industrial production could lose steam with a drop by 0.3% m/m in March after rising by 0.4% m/m in February, while the manufacturing output increases by 0.4% m/m following the 1.0% m/m decline in the previous month.

6. GBP- Bank of England Interest Rate Announcement, Wed., May 2, 8:15 am, ET.

The minutes from the Bank of England's April meeting made it clear that the majority of the Monetary Policy Committee members are not in a hurry to do more quantitative easing in the near term. No change in the record low 0.5% benchmark rate will also be the likely outcome of the meeting. With the Fed and the ECB policy makers divided on which way monetary policy should be steered next, the Bank of England's current course seems a bit more stable and less oriented towards easing, which has helped the GBP. The sterling has done well in this environment and could continue to attract bids as a more attractive alternative to the euro and the greenback (provided that risk does not decide to party like it's 2008).

7. USD- U.S. Jobless Claims, Thurs., May 10, 8:30 am, ET.

After the significant drop from 388K to 365K, first-time claims for unemployment benefits are forecast to inch higher to 375K. We would consider a larger increase in jobless claims as a potential risk event for the USD on signs of additional weakness in the U.S. labor market, following last week's disappointing jobs report.

8. CNY- China CPI- Consumer Price Index, Thurs., May 10, 9:30 pm, ET.

Inflationary pressures in the world's second largest economy are forecast to continue to subside with a reading of 3.4% y/y in April from 3.6% y/y in March. Lower inflation does not raise the odds of more tightening by the Chinese central bank.

9. CAD- Canada Labor Force Survey, Fri., May 11, 8:30 am, ET.

An employment report that would hardly manage to impress could weigh on the Canadian dollar. After adding 82,300 jobs in March, the Canadian economy is forecast to add a significantly lower amount of about 13,000 new jobs in April, while the unemployment rate rises to 7.3% from 7.2% in the previous month.

10. USD- U.S. Consumer Sentiment, Fri., May 11, 9:55 am, ET.

Although some of the optimistic forecasts are pointing to a small increase in the consumer confidence index to 76.5 in May from 76.4 in April, we remain cautious as a result of less optimistic estimates calling for a decline in the index to 75.9. We expect that each new weak economic report from the world's largest economy will have the potential to raise the odds of the Fed "doing more" (the two code words for QE3), which in turn could weaken the greenback.