A Rise in Retail Sales and Optimism Could Extend Dollar’s Gains

•    BoE Quarterly Inflation Report  – February 10, 05:30 ET
Inflation is currently threatening to break above the BoE’s 3% threshold which requires Governor King o write a letter of explanation on how rate surpasses their 2% target by more than 12%. The central bank leader would also be required to outline a plan of action to bring rate in line with their goals. The MPC in their statements following last week’s rate decision expected that consumer price would return below their ideal level for a period, but that could follow further appreciation. If the report puts forth the notion that inflation will remain high for sometime then we could start to see interest rate expectations rise and sterling support generated. Conversely, signs that price growth is slowing will leave the door open for the central bank to leave rates on hold and potentially add to their QE efforts. A dovish outlook for rate should continue to weigh on the pound leading to additional downside risks.

•    Australia Employment Change (JAN) – February 10, 19:30 ET
The Australian economy is forecasted to have added jobs for a fifth straight month on January, as the land owns under continue to reap the benefits of robust Chinese domestic growth. Economists are looking for another 15,000 net hires which would be the lowest total for the period and a sign that growth is slowing. The RBA surprised markets last week by leaving their target rate unchanged at 3.75% following three consecutive hikes, as they look to remain cautious with downside risks remaining. Friday saw policy makers upwardly revise their inflation and growth forecasts for 2010 to 2.5% and 3.25% respectively. A strong labor report would validate those assumptions and raise the outlook for future yields which could send the Australian dollar higher. Conversely, a disappointing result could be a sign that companies have slowed their p[ace of hiring as China’s begins efforts to curb lending and tame growth in order to avoid inflationary pressures.

•    U.S. Advance Retail Sales (JAN) – February 11, 8:30 ET
U.S. consumer demand in January is forecasted to have risen 0.3% from the month prior as shoppers looked to take advantage of post holiday discounts. December saw an unexpected drop as Americans made the bulk of their purchases in November as it was anticipated that reduced inventories would leave short supply of the most desired gifts. A 2.6% drop in electronics purchases led to the overall 0.3% decline. ICSC chain store sales showed a 3.0% rise from a year ago as several retailers posted solid results. If Americans start to loosen their purse strings it will raise the outlook for domestic and global growth as the U.S. is the world’s largest consumer. Improved domestic demand will push upward pressure on consumer prices which could force the FOMC to start raising rates sooner than expected, which could generate US dollar support.

•    Euro-Zone GDP (4Q P) – February 12, 5:00 ET
Euro-zone GDP is expected to have risen for a consecutive quarter by 0.3% as government stimulus and improving global demand continue to drive growth. Last quarter saw a 0.6% contribution from government spending and exports add 3.1%. The manufacturing PMI reading rose to 52.4 from 51.6 in January showing that sector continues to expand which should be reflective in the fourth quarter results. However, a pull back in the service sector and flat retail sales are signs that domestic growth remains challenging which leaves little potential for an upside surprise. Continues growth in the region may be supportive of the Euro, but bullish sentiment for the single currency may be difficult to come by with the prevailing budget concerns of Greece, Portugal and Spain.

•    University of Michigan Consumer Confidence (FEB P) – February 5, 7:00 ET - 9:55 ET
The preliminary University of Michigan consumer confidence report for February is the first look at American’s outlook. Optimism is forecasted to have risen for a fourth straight month to 74.8 from 74.4 which would be the highest since January, 2008. An improving outlook following strong consumption figures will raise the outlook for domestic growth. Consumers with a rosier disposition are more likely to absorb higher prices, especially if wages continue to rise as they did in January by 0.3%. Rising inflation expectations should translate into an improved outlook for yields which is bullish for the greenback.

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