Trading Week Outlook: Jan. 30 - Feb. 3

Jan. 29, 2012 (Allthingsforex.com) – With the EU Summit Part 6 to save the euro and the U.S. Non-Farm Payrolls taking the center stage, the week ahead could prove crucial for the future fate of the single currency, while it could also offer more clarity on how the market plans to price Fed monetary policy expectations.

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- EU Summit of European Leaders, Mon., Jan. 30, all day event. 

The EU Summit will follow a couple of weeks of unsuccessful private sector involvement negotiations on Greece and the lack of a deal could make it more difficult for EU leaders to advance further the recently-proposed plans to contain the debt crisis. Past history has shown that following each EU Summit there is a strong potential for disappointment, especially if another round of empty promises and absence of bold measures once again fail to convince investors that the worst is behind.

2.    USD- U.S. Personal Income and Outlays, a measure of consumer income and spending, released along with the PCE Price Index- the Fed’s preferred gauge of inflation, Mon., Jan. 30, 8:30 am, ET.

Vital for the U.S. economy, consumer spending is forecast to inch higher by 0.2% m/m in December from 0.1% in November, while the Fed’s preferred core PCE Index stays flat at 0.1% m/m.   

3.    USD- U.S. Consumer Confidence, a measure of consumer confidence and outlook on the economy, Tues., Jan. 31, 10:00 am, ET.

After the unexpected drop a few months ago, the trend of improvement in consumer confidence is expected to continue with the index rising to 68.0 in January from 64.5 in December.

4.    EUR- Euro-zone Flash HICP- Harmonized Index of Consumer Prices, the main measure of inflation preferred by the European Central Bank, Wed., Feb. 1, 5:00 am, ET. 

Clearly focused on stimulating growth, inflation would likely continue to be a non-issue for the European Central Bank which could steer further away from tightening monetary policy as consumer prices ease to 2.7% y/y from 2.8% y/y in the month before and down from the last summer spike to 3.0% y/y.

5.    USD- U.S. ADP Employment Report, a measure of job creation in the private sector of the U.S. economy, Wed., Feb. 1, 8:15 am, ET.

As seasonal employees exit the labor force after the holidays, private sector payrolls are forecast to increase at a slower pace by up to 185K in January from 325K in December.

6.    USD- U.S. ISM Manufacturing PMI- Purchasing Managers Index, a leading indicator of economic conditions in the U.S. measuring activity in the manufacturing sector  of the economy, Wed., Feb. 1, 10:00 am, ET.

The U.S. manufacturing activity is forecast to register another month of expansion with a reading of 54.3 in January, compared with 53.9 in the previous month.

7.    NZD- New Zealand Employment and Unemployment Rate, the main measures of labor market conditions, Wed., Feb. 1, 4:45 pm, ET.

Following last week’s less hawkish Reserve Bank of New Zealand statement and outlook, a weak employment report could offer another reason for the New Zealand central bank not to be in a hurry to hike rates.

8.    CAD- Canada Employment and Unemployment Rate, the main measures of labor market conditions, Fri., Feb. 3, 7:00 am, ET.

The Canadian economy is forecast to add up to 23,000 jobs in January, compared with 17,500 in December, keeping the unemployment rate at the same 7.5% level for another month.

9.    USD- U.S. Non-Farm Payrolls and Employment Situation, one of the main indicators of U.S. economic conditions measuring job creation and unemployment, Fri., Feb. 3, 8:30 am, ET.   

Despite of the Q4 2011 improvement in U.S. economic data, a dovish Fed last week made a commitment to extend its accomodative monetary policy for another couple of years and has hinted that QE3 is ready to be deployed if economic conditions deteriorate or if the EU debt crisis takes a turn for the worse. This is why it will be important for the U.S. economy to continue to demonstrate resilience in order to reduce the odds of the Fed "doing more" (which are the new code words for QE3). Otherwise, more quantitative easing at the expense of the U.S. dollar would be only a matter of time. With that in mind, the Non-Farm Payrolls report could raise a red flag with the economy adding lesser amount of about 100,000 jobs in January from 200,000 in December, while the unemployment rate stays unchanged at 8.5%.

10.    USD- U.S. ISM Non-Manufacturing PMI- Purchasing Managers Index, a leading indicator of economic conditions in the U.S. measuring activity in the services sector  of the economy, Fri., Feb. 3, 10:00 am, ET.
  
Humming along with manufacturing, the U.S. services sector is forecast to continue to expand with an ISM non-manufacturing index reading of 53.5 in January from 52.6 in the previous month.