September 22 2013

Sept. 22, 2013 ( – Following the Fed’s decision to abstain from reducing the size of monthly asset purchases, in the week ahead traders will shift their focus from the U.S. dollar to the euro as the outcome of the German elections and economic data from the euro-zone offer more insights on the future policies of the leader of the union and the state of the 17-nation economy.

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- Germany Federal Elections, Sun., Sept. 22, all day event.

At the time of writing of this article, the latest polls pointed to a clear win for Chancellor Angela Merkel- the country’s first female chancellor and only the fourth chancellor since World War II to win a third term. Ms. Merkel’s Christian Democratic bloc is set to take about 42.5% of the vote and that would give her a one-seat majority in the lower house of the Bundestag, just enough to govern without trying to find a coalition partner (although a coalition to assure more significant majority would likely be formed in upcoming weeks). A third term for Chancellor Merkel should be euro-positive as German policies remain unchanged. Germany is the biggest contributor in the 496 billion euro bailout fund and the current programs of austerity in exchange for financial aid will probably continue to be the blueprint of choice for German participation in future bailouts. The euro could extend its recent rally towards the 2013 high around $1.37.

2.    EUR- Euro-zone Manufacturing and Services PMI- Purchasing Managers Index, a leading indicator of economic conditions measuring activity in the manufacturing and services sectors, Mon., Sept. 23, 4:00 am, ET.

The chronic contraction in the euro-zone’s manufacturing and services sectors finally ended a couple of months ago and both indexes are expected to continue to improve. The Manufacturing PMI is forecast to register another positive month with a reading of 51.8 in September from 51.4 in August, while the Services PMI also heads higher with a preliminary estimate of 51.1 in September from 50.7 in the previous month. Solid PMI reports should keep the EUR supported.

3.    EUR- Germany IFO Business Climate Index, a leading indicator of economic conditions measuring the outlook of businesses, Tues., Sept. 24, 4:00 am, ET.

This could be yet another report that might give the euro a boost next week. The business outlook in the euro-zone’s largest economy is forecast to be more optimistic with the Ifo index forecast to rise to 108.4 in September from 107.5 in August.

4.    USD- U.S. Consumer Confidence, a measure of consumers’ outlook on the economy, Tues., Sept. 24, 10:00 am, ET.

In contrast to the euro-zone data, the outlook of U.S. consumers is expected to deteriorate with the consumer confidence index forecast to decline to 79.9 in August from 81.5 in the previous month.

5.    USD- U.S. New Home Sales, an important gauge of housing market conditions measuring sales of newly-constructed homes, Wed., Sept. 25, 10:00 am, ET.

Mimicking the jump in existing home sales, new home purchases in the U.S. are also forecast to increase to 422K in August from 394K in July.

6.    GBP- U.K. GDP- Gross Domestic Product, the main measure of economic activity and growth, Thurs., Sept. 26, 4:30 am, ET.

In the first quarter of the year, the U.K. economy managed to avoid an unprecedented triple-dip recession and expanded by 0.3% q/q. The economy grew at an even faster pace by 0.7% q/q in the second quarter and this number is expected to be confirmed as the final Q2 2013 reading. The report could serve as a reminder that the U.K. recovery is on the right track and could keep the GBP rally intact.

7.     USD- U.S. GDP- Gross Domestic Product, the main measure of economic activity and growth in the world’s largest economy, Thurs., Sept. 26, 8:30 am, ET.

There might be another upward revision on the horizon with the final Q2 GDP reading forecast to show the economy growing faster by 2.7% q/a in the second quarter, compared with the previous estimate of 2.5% q/a. The USD could benefit from accelerating U.S. economic growth which could raise the odds that, despite of the decision to sit on the sidelines in September, the Fed might announce the tapering of asset purchases before the end of the year.

8.    USD- U.S. Pending Home Sales, a leading indicator of housing market activity measuring pending home sale contracts, Thurs., Sept. 26, 10:00 am, ET.

Pending home sales in the United States are expected to register a smaller decline of 0.9% m/m in August, compared with the unexpected 1.3% m/m drop in July as a result of higher mortgage rates.

9.    JPY- Japan CPI- Consumer Price Index, the main measure of inflation preferred by the Bank of Japan, Thurs., Sept. 26, 7:30 pm, ET.

Inflationary pressures in Japan have been on the rise in recent months and could stay that way with the National core inflation gauge forecast to remain at 0.7% y/y in August, same as the reading in July. With the index exiting deflation territory and heading towards the Bank of Japan’s 2% inflation target, the report could reduce expectations that the Japanese central bank will need to step up its QE campaign, which could mean less pressure on the yen.

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., Sept. 27, 9:55 am, ET.

After the disappointing drop in the preliminary estimate, the U.S. consumer sentiment index is forecast to be revised slightly higher to 78.2 in September, but still down from 82.1 in the previous month. The USD will continue to feel the pressure if the U.S. economic data weakens and eliminates the chance of a Fed taper in 2013.