Trading Week Outlook: January 9 - 13, 2012

Jan. 7, 2012 (Allthingsforex.com) – With another “Merkozy” meeting, Spanish and Italian debt auctions, and the European Central Bank’s monetary policy decision on the horizon, the week ahead will place the ball in the European Central Bank and the EU leaders’ court, as traders anxiously await the latest news from the embattled Euro-zone.  

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- German Chancellor and French President Meeting ahead of the EU Summit, Mon., Jan. 9, all day event. 

The German Chancellor and the French President are scheduled to meet to prepare ahead of the EU finance ministers meeting on January 23 and the next EU Summit on January 30. Although the Euro-zone newswires have been relatively quiet over the Holidays, the pressure on the euro has kept mounting in recent weeks. With the economy slowing and the EU debt debacle far from over, the clock is ticking for the EU leaders to find and implement concrete solutions to the crisis that threatens the existence of the European Monetary Union and the single currency.

2.    EUR- Germany Industrial Production, the main gauge of industrial activity measuring the output of factories, mines and utilities in the Euro-zone’s largest economy, Mon., Jan. 9, 6:00 am, ET.

In line with the contraction in the Euro-zone manufacturing and services indexes, the German industrial activity is expected to follow suit with a drop by 0.5% m/m in November from the 0.8% m/m increase in the previous month.  

3.    EUR- Germany GDP- Gross Domestic Product, the main measure of economic activity and growth, Wed., Jan. 11, 4:00 am, ET.

Even though Germany has done much better than the rest of its EU partners, the final reading of real GDP growth in 2011 in the Euro-zone’s largest economy is forecast to be revised lower to 3.0% y/y from a previous estimate of 3.6% y/y.   

4.    CNY- China CPI- Consumer Price Index, the main measure of inflation in the world’s second largest economy, Wed., Jan. 11, 8:30 pm, ET. 

The Chinese government’s attempts to cool things off and the People’s Bank of China’s rate hikes have been successful in slowing the economy and bringing inflationary pressures lower. The inflation report will be an evidence of that as the consumer price index declines for another month to 4.0% y/y from 4.2% y/y. 
  
5.    GBP- U.K. Industrial Production, the main gauge of industrial activity measuring the output of factories, mines and utilities, Thurs., Jan. 12, 4:30 am, ET.

As Britain’s largest trading partner the Euro-zone heads towards a potential recession, the U.K. industrial production is expected to remain flat at 0% m/m in November after declining by 0.7% m/m in October.

6.    EUR- Euro-zone Industrial Production, the main gauge of industrial activity measuring the output of factories, mines and utilities, Thurs., Jan. 12, 5:00 am, ET.

Economic conditions in the Euro-zone could continue to deteriorate with industrial output dropping for another month by 0.3% m/m in November following the 0.1% m/m decline in October.

7.    GBP- Bank of England Interest Rate Announcement, Thurs., Jan. 12, 7:00 am, ET.

At the start of the year, the Bank of England might not feel very adventurous and would be likely to maintain its existing monetary policy, keeping its record low benchmark rate at 0.5% for another month. Expect the size of the bank's Asset Purchase Program also to be maintained at 275 billion pounds, although the Monetary Policy Committee can leave the door open to more quantitative easing if U.K. economic conditions deteriorate or if the EU debt crisis takes a turn for the worse. The GBP could attract bids on expectations that the Bank of England policy makers might keep their fingers off the quantitative easing trigger for the time being.

8.    EUR- European Central Bank Interest Rate Announcement, Thurs., Jan. 12, 7:45 am, ET.

Although the consensus forecasts do not expect a rate cut at this meeting, with more and more economists calling for a "mild recession" in the Euro-zone which may have already started in the fourth quarter of 2011, it would not be surprising to see the European Central Bank taking on even more disguised quantitative easing and considering further rate cuts. As part of the bank's efforts to avoid a double dip, another 25bps cut could be just around the corner. Even though the euro could correct some of its recent losses if the ECB refrains from cutting rates in January, the single currency could dive deeper into the $1.20's against the USD if the market continues to price in slow Euro-zone growth, coupled with more austerity, further ECB quantitative easing and rate cuts.

9.    USD- U.S. Retail Sales, an important gauge of consumer spending measuring sales at retail establishments, Thurs., Jan. 12, 8:30 am, ET.   

Consumer spending in the world’s largest economy is expected to rise for another month with the U.S. retail sales increasing by 0.3% m/m in December from 0.2% m/m in November.

10.   USD- U.S. Consumer Sentiment, the University of Michigan's monthly survey of 500 households on their financial conditions and outlook of the economy, Fri., Jan. 13, 9:55 am, ET.  

The trend of improvement in the U.S. consumer sentiment could continue with a preliminary index reading of 70.8 in January compared with 69.9 in December. Upbeat U.S. economic data should keep the USD supported on reduced QE3 odds ahead of the Fed’s January 24-25 meeting.