July 1 2013

Jun. 30, 2013 (Allthingsforex.com) – In the holiday-shortened week ahead, traders will watch the next moves by the European Central Bank and the Bank of England, while gauging the odds of “tapering” of the Fed’s asset purchases based on the outcome of the U.S. Non-Farm Payrolls.

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- Euro-zone Manufacturing PMI, a leading indicator of economic conditions measuring activity in the manufacturing sector, Mon., Jul. 1, 4:00 am, ET.

Despite of the index rising in recent months, the chronic contraction in the euro-zone manufacturing sector is likely to continue. The final reading of the Manufacturing Purchasing Managers Index is forecast to be confirmed at 48.7 in June, still below the 50 boom/bust line.

2.    USD- U.S. ISM Manufacturing Index, a leading indicator of economic conditions measuring activity in the manufacturing sector, Mon., Jul. 1, 10:00 am, ET.

Manufacturing activity in the U.S. slowed down and the index unexpectedly dropped in contraction territory to 49.0 in May, but we could see the sector gaining traction in June with the index climbing back above 50 to 50.6 in June.

3.    AUD- Reserve Bank of Australia Interest Rate Announcement, Tues., Jul. 2, 12:30 am, ET.

There was a recent shift in leadership with the Australian Prime Minister replaced by the previous one. The data in the last few months has shown the country’s largest trading partner China slowing, liquidity concerns rising, the mining boom peaking and the “two-speed” Australian economy underperforming. All of this creates an environment in which the Reserve Bank of Australia could be forced to announce another 25 bps rate cut, maybe not at this meeting but sometime in the near future. The Aussie dollar has fallen significantly since the last meeting and could stay under pressure if the central bank makes it clear that policy makers are still willing to ease monetary policy further.

4.    EUR- Euro-zone Services PMI, a leading indicator of economic conditions measuring activity in the services sector, Wed., Jul. 3, 4:00 am, ET.

The final reading is expected to be in line with the preliminary estimate which showed activity in the euro-zone services sector inching higher to 48.6 in June from 47.2 in May. Despite of the anticipated increase, the index will be likely to remain below the 50 boom/bust line for yet another month of contraction.

5.    USD- U.S. ADP Employment Report, a measure of job creation in the private sector of the U.S. economy, Wed., Jul. 3, 8:15 am, ET.

Following the unexpected decline to 135K in May, the U.S. private sector is forecast to pick up the pace of job creation with up to 160K jobs added in June. The report could set the tone for an upbeat non-farm payrolls report on Friday.

6.    USD- U.S. ISM Non-Manufacturing Index, a leading indicator of economic conditions measuring activity in the services sector, Wed., Jul. 3, 10:00 am, ET.

Reaching its weakest level in nine months with a drop to 53.1 in April, activity in the U.S. services sector bounced higher to 53.7 in May and the index is forecast to continue to climb to 54.3 in June.

7.    EUR- Euro-zone GDP- Gross Domestic Product, the main measure of economic activity and growth, Thurs., Jul. 4, 5:00 am, ET.

In the first quarter of the year, the euro-zone economy was unable to return to growth and the final reading is forecast to confirm that the economy contracted by 0.2% q/q, prolonging the recession for a third consecutive quarter. With no end to its recessionary period and not much optimism that the economy might be turning a corner in the near future, the EUR could be pushed lower on expectations of additional easing by the European Central Bank.

8.    GBP- Bank of England Interest Rate Announcement, Thurs., Jul. 4, 7:00 am, ET.

The first meeting with the new Bank of England Governor Mark Carney in charge is not very likely to bring any sudden changes in the central bank’s monetary policy course. Recent data from the U.K. has shown signs of improvement and there is no need for policy makers to rush to increase the size of the Asset Purchase Program. With the bank expected to start offering forward guidance, future QE expansion will be dependent on the state of the U.K. economy. As long as the Bank of England remains on the QE sidelines, the pound should remain as a viable alternative to currencies whose central banks are committed to aggressive monetary policy easing.

9.    EUR- European Central Bank Interest Rate Announcement, Thurs., Jul. 4, 7:45 am, ET.

Conditions in Germany may be getting better in the last few months, but unfortunately, the 17-nation euro-zone is still struggling with record high unemployment and a prolonged recession. In this economic backdrop, the European Central Bank is not going to be willing to tighten monetary policy. Moreover, in an effort to spur economic growth, the ECB might need to consider additional unconventional monetary policy easing measures. The USD could find further strength against the EUR as the Fed gets ready to take the first step towards monetary policy tightening while the European Central Bank remains in an easing mode.

10.    USD- U.S. Non-Farm Payrolls and Employment Situation, the main indicator of U.S. economic health measuring job creation and unemployment, Fri., Jul. 5, 8:30 am, ET.

The U.S. labor market could continue its current trend with the economy adding up to 165K jobs in June compared with 175K in May, while the unemployment rate inches lower from 7.6% to 7.5%. A decent NFP report will raise the odds that the Fed could reduce the size of its monthly asset purchases sooner than expected and could give the USD a boost.