Forex Weekly Outlook December 12-16 2011

The highly anticipated EU Summit provided mixed results, and currencies remained mixed after a volatile week. The focus now moves to the other side of the Atlantic – to the FOMC decision. In addition, we have German ZEW Economic Sentiment, US retail sales, and Unemployment claims as important market movers this week. Here is an outlook on the most influential events ahead.

Last week Mario Draghi President of the European Central Bank lowered rates to 1.0% and announced new measures to aid the banks but made it clear that he opposes big bond buys meaning there will be no QE at this time. The ECB forecasts recession in 2012. Will these measures stop the “ticking bomb” situation in Europe? Let’s start:

US Federal Budget Balance: Monday, 19:00. The Federal deficit was lower than expected in October reaching $98.5 billion while $129 billion was expected. The relatively small expansion was mainly due to a shift of payments to September. Income taxes increased by 21.5% on a yearly base, while social security payments rose 2.7%. Deficit is expected to widen to -$138 billion
UK inflation data: Tuesday, 9:30. Inflation rate in the UK dropped slightly to 5% in October, lower than 5.2% rise in the previous month. A decline in prices of food, air transport and fuel caused the drop. Regardless the decline the government still acknowledges that inflation is too high. A drop to 4.8% is expected now.
Euro-Zone German ZEW Economic Sentiment: Tuesday, 10:00.Germany’s economic sentiment dropped more than expected in November sliding to -55.2 from -48.3 due to the crisis inEurope. Economics expected a smaller drop of -52.5. A further decline to -55.7 is predicted.
US retail sales: Tuesday, 13:30. The U.S. economy kept its momentum in October where retail sales continued climbing 0.5% indicating more manufacturing activity in October. The rise was better than the 0.3% climb predicted. Meanwhile Core retail sales edged up 0.6% well above the 0.2% climb predicted. Although the US economy looks OK the European debt crisis expecting to bring recession is likely to affect theUS economy. Retail sales is expected to climb by 0.6% while Core sales is expected to increase by 0.5%.
US FOMC Statement: Tuesday, 19:15. The last FOMC statement released on November revealed that the Federal Reserve will continue its program of Operation Twist to support the economy and will maintain interest rates at near-zero until at least mid-2013 and noted that the European debt crisis is a major downside risk for the US economy. Will the Fed make any policy changes at the end of the year? Probably not.
UK employment data: Wednesday, 9:30. The number of people claiming unemployment benefits in the U.K. was surprisingly low in October reaching 5,300 claims. The reading was well below the 21,000 predicted and followed 13,400 claims in the previous month. An increase to 17,300 is forecasted.
Switzerland rate decision: Thursday, 8:30.The Swiss National Bank decided to keep the Libor Target near zero continuing August big rate drop following the franc’s appreciation. The SNB expects growth to reach 1-1.5% this year below its 2.0% growth previously forecasted. No change is rate is expected.
US PPI: Thursday, 13:30. Producer price index dropped 0.3% in October following 0.8% increase in the previous month due to lower energy costs. Economists expected a smaller drop of 0.1% An increase of 0.3% is forecasted.
US Unemployment Claims: Thursday, 13:30. The number of Americans filing initial claims for unemployment benefits decreased to a nine-month low falling 23,000 to 381,000, indicating a recovery trend in the labor market. Analysts expected 395,000. This good reading combined with the sharp drop in Unemployment rate suggests a real recovery is underway. A small rise to 389,000 is expected.
US TIC Long-Term Purchases: Thursday, 14:00. Foreign purchases of long-term securities increased more than predicted in September climbing to USD68.6 billion from USD58.0 billion in the previous month and above the USD63.4 billion predicted indicating investors believe in the US currency. A drop to USD53.4 billion is forecasted.
US Philly Fed Manufacturing Index: Thursday, 15:00. Manufacturing activity in Philadelphia Federal Reserve district expanded less than forecasted reaching 3.6% from 8.7% in October. Nevertheless Manufacturers appear to be optimistic regarding future activity as the number of workers index rose to 12.0 from1.4 in October. An increase to 5.1 is forecasted.
US inflation data: Friday, 13:30. The consumer price index edged up 0.1% in November in line with predictions and following the same 0.1% rise in the previous month. The increase was due to higher food and energy costs indicating a low inflation rate. A rise of 0.2% is predicted.

*All times are GMT.

That’s it for the major events this week. Stay tuned for coverage on specific currencies

Anat Dror

Anat Dror Senior Writer I conceptualize, design and create multi-lingual websites. Apart from the technical work, my projects usually consist of writing content for these sites in English, French and Hebrew. In the past, I have built, managed and marketed an e-learning center for language studies, including moderating a live community of students. I've also worked as a community organizer Anat's Google Profile

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