Forex Weekly Outlook – Oct. 31-Nov. 4

The US dollar dropped sharply as the euphoria from Europe replaced fear. Will this continue? The upcoming week is very busy: rate decisions in the US, the euro-zone and Australia, the G-20 Meetings and Non-Farm Payrolls. Here is an outlook on the major market-movers ahead.

Last week the US economy grew at an annual pace of 2.5% in Q3 2011, slightly higher than the 2.4% growth expected and US weekly unemployment claims also came close to the 400K predicted with a reading of 402K.  Meanwhile Progress on Europe’s debt crisis achieved at the EU summit in Brussels when Italian Prime Minister Silvio Berlusconi  presented a plan of economic reforms in reply to the EU ultimatum demanding swift action to boost growth and reduce Italy’s huge public debt. Greece will be under close supervision while implementing the required reforms and in turn the bailout deal to Greece will wave off 50% ofGreece’s bond debt to banks. Will this dramatic week be a turning point for the EU economy and how will this affect global markets?

Let’s Start

1. Canadian GDP: Monday, 12:30.Canada’s economy expanded 0.3% in July, amid improvement in the manufacturing, wholesale trade, and transportation sectors. The reading was in line with predictions following 0.2% rise in the previous month. The positive increases terminate speculations of a possible recession in Canada. A smaller growth rate of 0.2% is expected now.
2. Australian rate decision: Tuesday, 3:30. The Reserve Bank of Australia (RBA) can slash the rates to 4.50% after leaving them unchanged for a very long time. The slower rise in prices and the global weakness point to a cut, although the eventful week and the uncertainty can cause Glenn Stevens and his colleagues to leave rates unchanged at 4.75%. This will definitely be an exciting event.
3. US ISM Manufacturing PMI: Tuesday, 14:00. U.S. Manufacturing PMI lifted itself further from the 50 point line in September reaching 51.6, indicating growing economic activity in the manufacturing sector. This reading was better than the 50.5 predicted and the 50.6 reading in the previous month. An increase to 52.4 is forecasted now.
4. US ADP Non-Farm Employment Change: Wednesday, 12:15. The private-sector job market added 91,000 positions in September following 83,000 rise in August. Small businesses showed the biggest increase. This reading was well above the 76,000 increase predicted. A further increase of 102,000 is expected now. Note that this isn’t always directly correlated to the Non-Farm Payrolls,, but still rocks the markets.
5. US FOMC Statement: Wednesday, 16:30, followed by a press conference at 18:15. The last US FOMC statement included the announcement of the $400 billion twist, and indicated modest economic growth forecasts with ongoing difficulties in the job market. The FOMC committee expects growth will pick-up in the following quarters although unemployment will be reduced only gradually. No new policy changes are expected now, so the focus remains on the economic forecasts, which can improve with the recent improvements in the US economy. For the first time since June, the statement will be followed by a press conference by Ben Bernanke. Questions by reports could trigger interesting outcomes.
6. New Zealand employment data: Wednesday, 21:45. The New Zealand employment market remained unchanged in June 2011 quarter. No new jobs were created and unemployment rate was maintained at 6.5%. But the number of people employed rose by 1,000. NZ economy is expected to add 0.6% jobs in the September quarter and Unemployment rate is predicted to drop to 6.4%.
7. US Unemployment Claims: Thursday, 12:30. Last week initial jobless claims decreased 2,000 to 402,000 while a bigger drop to 400,000 was expected. Nevertheless the readings are still high and need to drop below the 400,000 to enable a positive change in the job market. Republicans failed President Barack Obama’s $447 billion plan to boost employment but ongoing efforts are made to tackle this issue. A small increase to 403,000 is forecasted now.
8. Euro-Zone rate decision: Thursday, 12:45, followed by a press conference at 13:30.  Mario Draghi’s unfortunate first decision will likely be to lower the rates by 0.25%. This was discussed in Trichet’s last meeting but didn’t materialize. With deteriorating economic conditions in both core and peripheral countries, the ECB can help growth by lowering the rates. A 50bp cut would be more appropriate, Draghi will not want to be seen as being loose on inflation. Italy is known for looser monetary policy, and Draghi will likely want to avoid this stigma. The euro will move on the words of the new president in the press conference. If forecasts remain depressing, more falls are likely. If forecasts will remain stable, the euro could stabilize and even rise.
9. US ISM Non-Manufacturing PMI: Thursday, 14:00.U.S. non-manufacturing PMI slightly dropped to 53.0 in September from 53.3 in August in line with predictions indicating a slower growth in prices of non-manufacturing  industries. A rise to 54.1 is expected. This is the largest sector in the US, and stronger growth here will raise expectations for the Non-Farm Payrolls.
10. Canadian employment data: Friday, 11:00. The Canadian job market added 61,000 full time positions in September pushing the unemployment rate down 0.2% to 7.1 indicating an improvement in the job market conditions. An addition of 20,300 jobs is expected but unemployment claims are predicted to rise to 7.2%.
11. US Non-Farm Employment Change and US Unemployment Rate: Friday, 12:30. The US created 103,000 new jobs in September well above the 55,000 expected but unemployment rate remained unchanged at 9.1%. Nevertheless, monthly employment figures tend to be   volatile and should not be followed meticulously each month, a broader look indicates improvement in the job market. The US non-farm sector is expected to add 100,000 jobs this time and the unemployment rate will probably remain unchanged at 9.1%.

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

*All times are GMT.

Further reading:

• For EUR/USD, check out the  Euro to Dollar forecast.
• For the Japanese yen, read the  USD/JPY forecast.
• For GBP/USD  (cable), look into the  British Pound forecast.
• For the Australian dollar (Aussie), check out the  AUD to USD forecast.
• For the New Zealanddollar (kiwi), read the  NZD forecast.
• For USD/CAD (loonie), check out the  Canadian dollar
• For the Swiss Franc, see the  USD/CHF forecast.