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The yen and the Aussie fell to new lows as the dollar and the euro maintained their strength in the week that precedes the all-important FOMC meeting. Will the Fed announce QE tapering? Any decision will rock markets and is also expected to have a long term impact. In addition, we have a speech from Mario Draghi, German ZEW Economic Sentiment, UK employment data, as well as US housing employment and a rate decision from Japan. Check out these events and more on our weekly outlook.

A flow of positive data from the US over the last few weeks makes the Federal Reserve taper decision almost a dead certainty.  Democrats and Republicans agreed on a budget which will spare the US government from another confidence damaging shut-down. Furthermore, stronger job market data earlier from the NFP and now from the JOLTS number all provide the Fed the “evidence” it needs to start tapering its $85 billion a month bond purchasing program. Will the Fed “Dectaper” or delay its decision to early 2014.  Let’s start,

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  1. Mario Draghi speaks: Monday, 14:00. ECB President Mario Draghi will speak at the European Parliament’s Committee on Economic and Monetary Affairs, in Brussels. Draghi may talk about his call on national governments to deliver economic reforms focusing on completing the banking union, implementing growth-friendly fiscal consolidation, and structural reforms in labor and product markets.  Ensuring the continuation of price is essential for continued growth and recovery. In the recent appearance he seemed calm and helped the euro. Will he express more concern now?
  2. UK inflation data: Tuesday, 9:30. UK headline CPI declined to 2.2% in October after posting  2.7% in September, reaching its lowest level since September 2012, while core CPI fell to 1.7% on the year from 2.2%, its lowest reading since September 2009.  A drop in transport costs and a tuition fees was the main reason behind the sharp fall in October.  CPI is expected to remain 2.2% this time.
  3. German ZEW Economic Sentiment: Tuesday, 10:00 German analyst and investor climate edged up to its highest level in four years, in line with market consensus, reaching 54.6 from 52.8 in the previous month. Economic outlook for the Euro-area improved moderately but contributed to this rise. Germany’s economy advanced 0.3% in the third quarter following 0.7% expansion in the second quarter making Germany the only stable economy able to positively influence overall euro area GDP. A rise to 55.5 is expected this time.
  4. US inflation data: Tuesday, 13:30. Consumer prices fell 0.1% in October  after rising 0.2% in September, down for the first time since April when the CPI dropped 0.4%. Economists expected consumer prices in October to be flat. Meanwhile, Core inflation in October edged up 0.1%  for a third consecutive month due to a rise in used vehicles, shelter, transportation and medical care commodities. The rise was in line with market projections. The American cost of living declined in October for the first time in six months and annual inflation rate reached its lowest in four years. Both CPI and Core CPI are expected to gain 0.1%.
  5. German Ifo Business Climate: Wednesday, 9:00. German business confidence edged up in November to 109.3 from 107.4 in October, marking its highest level since April 2012. Economists expected a smaller gain of 107.9. Service providers are more optimistic with their current business situation, indicating current business situation improved. Furthermore, manufacturers’ business outlook also improved expecting stronger impulses from exports in the coming months. Another rise to 109.7 is forecasted now.
  6. UK employment data: Wednesday, 9:30.  The  UK labor market continued to improve in October with another fall of 41,700 in the number of people claiming jobless benefits, far better than the 30,000 drop expected. The reading in September was even better positively revised to 44,700, which was the largest fall since 1997. The continuous improvement in the number of unemployed Britons, pushed unemployment rate down to 7.6% in the second quarter from 7.8% in the first quarter and 0.1% less than in the previous month. The BoE carefully watches UK jobless rate to decide whether to continue its forward guidance policy. A drop of 35,200 in the number of job applicants is expected with no change in unemployment rate.
  7. US Building Permits: Wednesday, 13:30. The number of apartments building permits approved in October climbed at the fastest pace in five years, reaching an adjusted annual rate of 1.034 million a trend that could boost economic growth in the final quarter of 2013. The 6.2% addition was mainly for multi-family homes. Permits for single-family houses, advanced 0.8% to a rate of 620,000, slightly below the August pace of 627,000, indicating higher prices and borrowing costs are lowering demand. Nevertheless the positive figure suggests the partial government shutdown had little effect on the housing sector. A decline to 990,000 is expected this time.
  8. US FOMC Statement and Press Conference: Wednesday, 19:00, press conference at 19:30. This is big event of the week. The Fed is likely to go ahead with QE tapering in December. The main reason is that the plan that Bernanke laid down back in June remains intact. He then said that QE could end altogether when the unemployment rate reaches 7% sometime in 2014, and that tapering could begin by the end of 2013. While the participation rate dropped since June, the unemployment rate reached 7% already now. In addition, job gains are steady and stable despite the government shutdown and the debt ceiling scare. Even if we have a re-run of the debt ceiling debacle, the US economy is strong enough to withstand a small withdrawal of the huge monetary stimulus, before the rises in house prices become bubbly. Some see chances at 40%, while others think it’s 99% certain.  Even though expectations have risen for tapering, the actual announcement is likely to push the dollar higher.  .
  9. New Zealand GDP: Wednesday, 21:45. New Zealand GDP growth expanded 0.2% in the second quarter, following a revised 0.4% climb in the first quarter, pushing GDP to 2.5% year-on-year. Construction and building activity continued to increase in the second quarter mainly in earthquake stricken Canterbury. The service sector expanded 2.6%, mainly in architecture and engineering, while construction activity rose  2.3%. Retail sales and accommodation edged up 2.1%. However due to the  drought in New Zealand,  the farming sector fell 4.8%, mostly due to lower diary production. New Zealand is anticipated to expand 1.2% in the third quarter.
  10. US Unemployment Claims: Thursday, 13:30. The number of Americans filing initial claims for unemployment benefits surged 68,000 last week, reaching 368,000, offsetting the prior three weeks of declines. This was the largest increase since November 2012. Economists expected a much lower reading of 321,000 last week. The big rise pushed the four-week average by 6,000 to 328,750. However the significant jump may be related to the seasonal volatility including a late Thanksgiving. Nevertheless, the US job market is strengthening with a steady improvement in nonfarm during October and November. An A smaller figure of  336,000 claims is expected now.
  11. US Existing Home Sales: Thursday, 15:00. The number of Americans buying previously owned homes in October dropped 3.2%, due to higher mortgage rates, the partial government shutdown and a short supply of houses on the market reduced sales.  The seasonally adjusted annual reading of 5.12 million, was lower than the 5.29 million posted in September and the slowest figure since June. A healthy pace is around 5.5 million. Economists expected a higher figure of 5.17 million units pace. The government shutdown and debt ceiling battle caused a certain amount of uncertainty among buyers worried about future economic conditions and rising mortgage rates have also contributed to the slowdown. Another decline to 5.04 million unit pace is expected this time.
  12. US Philly Fed Manufacturing Index: Thursday, 15:00. Factory activity in the U.S. mid-Atlantic region softened in November, dropping to 6.5, from 19.8 in October, the lowest reading since May. The unexpected fall missed economists’ expectations of a 15.8 reading. However, despite the plunge, the index was still positive. Future six month business outlook fell to 45.8 from 60.8. A rise to 10.3 is anticipated now.
  13. Japan rate decision: Friday. The Bank of Japan’s policy meeting in November revealed the following resolutions: The BOJ members decided to maintain monetary policy unchanged and unanimously agreed to continue implementing easing measures to increase monetary base by JPY 60 to 70 trillion, aiming to reach a price stability target of 2.0%. The members remarked that Japan’s economy was recovering moderately and noted a few downside risks such as uncertainty regarding the European debt crisis; developments in the emerging and commodity-exporting economies; and the pace of recovery in the United States. No change in rates is expected.

*All times are GMT.

More:  5 reasons for QE tapering in December – NFP Analysis

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

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