5 key events

Euro, British Pound Strength May Be Tested by Q3 GDP, BOE Inflation Report

With much of the biggest US event risk for the month out of the way, the coming week will present an opportunity to focus on the euro and British pound. Indeed, the Q3 GDP report for the Euro-zone may show that the region started to emerge from recession, while the Bank of England’s Quarterly Inflation Report will provide clues of the central bank’s stance on monetary policy. Not to be forgotten, the German ZEW survey, Australian employment change, and University of Michigan consumer confidence reports could all have an impact on FX trade.

• German ZEW Survey (NOV) - November 10, 5:00 ET
The Germany ZEW survey of investor confidence may yield mixed results for the month of November, as the index of sentiment on current conditions if forecasted to improve for a sixth month to -70 from -72.2, while sentiment on the economic outlook is forecasted to slip for a second month to 55 from 56. Such results would suggest that recent improvements in European growth indicators have inspired confidence, but broad-based uncertainty about the global outlook has left investors somewhat skeptical it will continue. The release of the ZEW results tend to have a very brief impact on the euro, but only if the data is surprisingly strong/weak, and this is likely to be the case this time around as well.

• Bank of England Quarterly Inflation Report - November 11, 5:30 ET
The release of the Bank of England’s Quarterly Inflation Report tends to provide market-moving moving news for the British pound, though this will only be the case this time around if there are significant revisions to the central bank’s growth or inflation outlook. The BOE’s last inflation report reflected forecasts for GDP to become positive once again during the second quarter of 2010, as the contraction likely bottomed out in Q1 2009. Beyond that, though, any expansion in the UK economy is likely to be very slow. Meanwhile, the BOE’s outlook for CPI called for inflation to remain volatile by falling sharply in the short-term, with BOE Governor Mervyn King noting that he would likely “need to write a letter to the Chancellor to explain why inflation has fallen more than one percentage point below the [2 percent] target.” That said, the Q3 GDP reading of -0.4 percent for the UK was surprisingly weak and suggests some potential for the BOE to push back their estimates for recovery until later in 2010. If this is the case, the British pound could fall very sharply, especially since the BOE recently expanded their Asset Purchase Facility by £25 billion to £200 billion.

• Australian Employment Change (OCT) - November 11, 19:30 ET
The release of the Australian employment change can often be like US non-farm payrolls: difficult to product and occasionally very market-moving. This could be the case on Wednesday evening as data is expected to show that Australia lost 10,000 jobs in October, which could push the unemployment rate up to 5.8 percent from 5.7 percent. Now, this would actually signal very little change from where the labor markets have been over the past few months, as the rate of joblessness first hit 5.8 percent in June. As a result, it will take a sharp decline in jobs to elicit a strong response from the Australian dollar, while a surprise increase could provide the currency with even more support.

• Euro-zone GDP (3Q A) - November 13, 5:00 ET
Has the Euro-zone finally started to emerge from recession? Traders will get a better official sense on Friday as the advance reading of Q3 GDP will be released. The quarterly rate is projected to rise for the first time since Q1 2008 by 0.5 percent, while the annual rate is anticipated to edge up to -3.9 percent from -4.8 percent. Overall, there are some downside risks for this report, as the purchasing managers’ index (PMI) for the manufacturing sector rose throughout Q3, but only managed to rise above 50 in October, suggesting that the sector’s contraction in activity simply waned. On the other hand, PMI for the services sector rose above 50 in September, indicating an expansion in activity. All told, any positive quarterly GDP result would likely yield a very strong reaction from the euro, but if the figure continues to signal a contraction in the Euro-zone’s economy, the currency could drop sharply on speculation that the European Central Bank will have not start to close down their liquidity programs in December.

• University of Michigan Consumer Confidence (NOV P) - November 13, 10:00 ET
The preliminary reading of the University of Michigan’s consumer confidence index is forecasted to improve slightly in November by rising to 71.0 from 70.6. That said, it’ll be interesting to see if the index can hold at such robust levels after the latest US labor market report showed that the unemployment rate rose above 10 percent in October for the first time since 1983. The major issue we want to point out with this report is that the official time of release is 10:00 ET, but it typically hits the wires at 9:55 ET, which can exacerbate any surprise factor from the actual results.

 See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.

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