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Lack of Key U.S. Data Shifts Focus Abroad, Markets Eye Bank of England

By , Currency Analyst
07 November 2011 11:00 GMT

The U.S. Dollar had a strong run the past week, easily outperforming its peers. The main drivers of price action during the first week of November included three rate decisions, the United States’ nonfarm payrolls report, and of course, the Euro-zone sovereign debt crisis. While the early part of the week featured a sharp sell-off in higher yielding currencies and risk-correlated assets on news that Greece could hold a referendum leave the Euro-zone, markets stabilized in the latter part of the week once that possibility was all but dismissed.

With that said, in terms of scheduled event risk, the docket is much thinner for the second week of November. The headline event of the week is the Bank of England rate decision on Thursday, although not much is expected from the meeting. Also on the docket is the Australian labor market reading, which has been disappointing recently, part of the reason why the Reserve Bank of Australia cut its key interest rate this past week. Additionally, there is some key data due out of China in the coming days, which should help clarify whether or not their economy is facing a “hard landing.”

On a final note, the Greek government looks like it will have fallen by the time this report will be published. It appears that current Prime Minister George Papandreou will hand over power to a coalition headed by Lucas Papademos; this move should clear way for Greece receiving its next aid payment. While this development should in turn boost risk-appetite in the near-term, there has been a notable shift in focus towards Italian bond markets; if the European Central Bank ceases its bond buying program, any euphoria following the toppling of the Greek government will be short-lived.

Australia Employment Change and Unemployment Rate (OCT): November 10 – 00:30 GMT

The Australian economy is forecasted to have added jobs in October, with a Bloomberg News survey showing an increase of 10.0K jobs. This would be a continuation of recent data, as the September reading came in at 20.4K. However, of recent, economic indicators have been deteriorating for Australia the most recent housing price index reading shows that the housing sector is showing signs of deterioration. In line with the Reserve Bank of Australia’s outlook, it appears the labor market could weaken in the periods ahead – though this release might not show that. Join a DailyFX analyst for live coverage of event!

EUR German Consumer Price Index (YoY) (OCT F): November 1007:00 GMT

The period of relatively higher interest rates set forth by the European Central Bank during the middle months of 2011 played its part in slowing down inflation: the reading using the harmonized European Union method slowed to 2.8 percent in October from 2.9 percent in September. Although the reading due out on Thursday is the final inflation reading for October, it still carries importance, considering that the European Central Bank decided to cut its key interest rate at its November meeting. As such, we’re now looking for signs that inflation is going to continue to moderate: if inflation continues to slow in the core Euro-zone countries, the European Central Bank will be inclined to cut rates further, weighing on the Euro in the coming months.

GBP Bank of England Rate Decision: November 10 – 12:00 GMT

The Bank of England’s Monetary Policy Committee is expected to maintain its key benchmark rate at 0.5 percent at its meeting on Thursday, the same rate held since March 2009. The primary underlying reason to maintain the rate continues to be the Monetary Policy Committee’s focus on economic growth rather than on reducing inflation, which ticked higher recently.The Overnight Index Swaps suggests rates will be on hold for some time, with a 3.0 percent chance of a rate cut at the meeting on Thursday. It is also important to watch whether or not the Committee expands the central bank’s asset purchase program again – it was increased to £275 billion at the last meeting – a move that would be an extension of quantitative easing, thus weakening the British Pound. Join a DailyFX analyst for live coverage of event!

CNY China New Yuan Loans (OCT): November 11 – --:-- GMT

According to a Bloomberg News survey, economists expect new loans in China to increase to 500.0 billion for October from 470.0 billion in September. While an increase in lending is generally an indication that economic growth is could be expanding, the People’s Bank of China has initiated a series of rate hikes over the past 12-months to try and stem further credit growth. A worse-than-expected reading is of particular importance, as the figure will be interpreted as a proxy for emerging markets growth; a reduced size of loans suggests growth is contraction. If the data falls in line or better-than-expected, look for risk-correlated assets, in particular the Aussie, to appreciate against lower yielding currencies, in particular the Japanese Yen.

USD United States U. of Michigan Consumer Confidence (NOV P): November 11 – 14:55 GMT

Consumer confidence in the United States is forecasted to improve slightly in November’s preliminary reading, after rebounding in October back to 60.9. The index is now back above the key 60.0 level, last having been above said level in July at 63.7. Part of the reason that confidence may show a slight rebound is that oil has recently come down from above $100 per barrel, a seemingly psychologically significant area for American consumers. Similarly, consumer spending has increased in line with stronger growth in the third quarter. Nonetheless, the rebound in confidence may be short-lived, as increased market volatility has erased trillions of value off of equity markets, and further political divisions over how to reduce America’s expanding debt burden have arisen once more. Join a DailyFX analyst for live coverage of event!

Rate Hike Probabilities / Basis Point Expectations (12-months)

Lack_of_Key_U.S._Data_Shifts_Focus_Abroad_Markets_Eye_Bank_of_England_body_Picture_1.png, Lack of Key U.S. Data Shifts Focus Abroad, Markets Eye Bank of England

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

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com.

Follow him on Twitter at @CVecchioFX

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07 November 2011 11:00 GMT