Forex Weekly Outlook –October 17-21

German ZEW Economic Sentiment, Ben Bernanke’s speech and US employment claims are a few of the market movers awaiting us this week. Here is an outlook on the major events.
Last week the mood towards the euro worsened  as the European Central Bank released its monthly bulletin accounting for its recent policy meeting and stressing the high uncertainty regarding Europe’s economic outlook. Although the rate was unchanged, there were many speculations for at least a 25 basis points cut. This release sent the EUR/USD down nearly 70-pips.
Let’s Start
  1. UK inflation data: Tuesday, 8:30.UK inflation climbed to 4.5% in August from 4.4% in the previous month due to higher transport costs, and clothing. In light of this reading BOE £200bn quantitative easing program is likely to increase. A further increase to 4.9% is predicted now.
  2. Euro-Zone German ZEW Economic Sentiment: Tuesday, 9:00.Germany’s economic sentiment continued to decline in September reaching -43.3 from -37.6 in the previous month.  Analysts expected the reading to drop to -45. This slide reflects the reoccurring crisis in Europe. Another decrease to -44.7 is expected.
  3. US PPI: Tuesday, 12:30. Producer prices were flat in August despite the rise in food prices and following 0.2% gain in July. Economists predicted PPI to decline by 0.1%. Meanwhile core PPI excluding food and energy gained 0.1% from 0.4% increase in July indicating inflation is slowing down. PPI is expected to increase by 0.2% as well as core PPI.
  4. US TIC Long-Term Purchases: Tuesday, 13:00. U.S. TIC long term purchases increased below expectations in July reaching 9.5 billion from 3.4 billion in the previous month. Economists forecasted an increase of 27.3 billion. A rise to 27.8 billion is forecasted.
  5. Ben Bernanke speaks: Tuesday, 17:15. Ben Bernanke head of the Federal Reserve is scheduled to speak at the Federal Reserve Bank’s 56th Economic Conference, in Boston. His speeches cause high volatility in the market.
  6. US Building Permits: Wednesday, 12:30. The number of building permits increased to 630.000 in August from the 597.000 registered in July, according to data released by the US Census Bureau. The result is higher than market consensus of 600.000. A small decline to 620,000 is predicted now.
  7. US inflation data: Wednesday, 12:30.US inflation rate Continued to climb rising by 0.4% in August after 0.5% jump nut the Core CPI excluding food and energy increased by 0.2% in line with predictions and the same as in the previous month indicating a healthy inflation rate with will make it hard for the FOMC members to plead for another round of QE. Core CPI is expected to increase by 0.2% while CPI  is predicted to grow by 0.4%.
  8. US Unemployment Claims: Thursday, 12:30.  Initial claims for unemployment in the US dropped by a mere 1000 claims to 404,000 after seasonal adjustment. Economists expected a higher figure of 406,000 pointing to a possible improvement in the employment market. A small increase to 408,000 is predicted.
  9. US Existing Home Sales: Thursday, 14:00. A nice climb in sales of second hand homes despite tight credit and appraisal problems sales reached 5.03 million units in August from 4.67 million in the previous month. Economists predicted a much lower figure of 4.75 million units. existing home sales are at their highest level since March and are up 18.6 percent compared to August of 2010. A decline to 4.95 million is expected now.
  10. US Philly Fed Manufacturing Index: Thursday, 14:00. Manufacturing activity in the mid-Atlantic region dropped further but slower in September reaching -17.5 from-30.7 in the previous month. This reading was lower than the -14.7 predicted. However employment got stronger in September moderating decline. Another more moderate decline of 8.7 is forecasted.
  11. Euro-Zone German Ifo Business Climate: Friday, 9:00. German business confidence dropped less than expected in September reaching 107.5 after108.7 in the previous month offering hope for Europe’s largest economy in resisting the European debt crisis. A drop to 106.3 is predicted.
  12. Canadian inflation data: Friday, 11:00. Core consumer price inflation inCanada excluding volatile components, increased more-than-expected in August gaining 0.4% after 0.2% increase in the previous month. This increase was well above predictions of 0.1% climb. Core CPI is expected to grow by  0.3% while CPI  is predicted to increase by 0.1%.
That’s it for the major events this week. Stay tuned for coverage on specific currencies

From: http://www.forexcrunch.com
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G20 finance chiefs and central bank heads meet in Paris on Friday urgently needing to find a convincing solution to a deepening euro zone debt crisis that has fanned fears of a global slide into recession.

A source at the French finance ministry — which is battling to flesh out the bones of a crisis resolution plan with Germany in time for an Oct. 23 European Union summit — said the euro zone was more pressing than anything else on the two-day agenda.
"This meeting takes place in a context where the absolute priority for the success of the G20 is to find the elements for the stability of the euro zone," the source said.
With impatience growing over the crisis, and its implications for the rest of the world, finance chiefs from outside the bloc are expected to speak frankly.    
"This meeting is an important staging point before (a G20 summit in) Cannes and a valuable opportunity to put pressure on the euro zone," said a non-euro zone G20 delegate.
Canadian Finance Minister Jim Flaherty set the tone late on Thursday, telling reporters before leaving Ottawa that euro zone actions were short of what is needed.    
Unlike in 2009 when the G20 launched a coordinated stimulus to pull the world out of economic crisis, the forum is at risk of division as the rest of the world chafes at Europe's dithering over a debt crisis that started 18 months ago in Greece, and as Washington and Beijing spar over the yuan.
Paris and Berlin are taking time to agree on how to recapitalise banks and while Germany favours a second round of losses for Greek bondholders, Paris is reticent. The two euro heavyweights also differ on the idea of joint bond issuance for the euro zone, with Germany loath to see its debt costs rise.
The Franco-German crisis plan is likely to ask banks to accept big losses on their Greek debt and should lay out a system for recapitalising troubled banks, whose shares have been pounded by fears about Greek exposure.    
At its core will be an agreement on how to increase the firepower of the EFSF rescue fund, and it should also set out a timeframe for ramping up economic coordination, with closer governance and explicit national laws on balancing budgets.
The G20 may refer to the euro crisis in its communique and in closing news conferences on Saturday evening, but little else of substance is likely to be inked in. 
China May Offer Growth, No Yuan Shift
     
This week's talks may give the green light to regulators for new rules on banks deemed 'too big to fail', including capital surcharges, due to be officially approved in Cannes.
Yet any concrete progress on bigger goals such as setting parameters to measure global imbalances and reining in commodity market volatility and speculative capital flows is unlikely to come before a Nov. 3-4 summit in Cannes, where France passes the G20 baton to Mexico.
The finance ministry source said that for Cannes France hoped to have two or three measures agreed for countries showing imbalances: consolidation measures for those with high deficits and stimulus measures for those with surpluses.
"We are going to try to make some progress and obtain, perhaps not tomorrow or Saturday but by Cannes, a list of measures country by country which corresponds to what is needed to relaunch global economic activity," he said.
"These must be measures which will have an impact on the real economy."
A separate G20 source said after preparatory talks late on Thursday that China would commit in Paris to boost its consumption through a five-year plan, via households and companies as well as infrastructure, as the G20 seeks tough fiscal commitments from the euro zone and the United States.
The G20 countries make up 85 percent of global output.
An April G20 meeting placed seven large economies under review -- the debt-burdened United States, export-rich China, France, Britain, Germany, Japan and India. Officials have said privately the aim was to get Beijing to discuss the yuan, and China's cooperation is essential to the success of the process.  
France has dangled the prospect of the yuan entering the basket of currencies making up the IMF's Special Drawing Right (SDR) in a bid to divert the debate away from its value and onto the criteria of free "usability" required for this.  
The euro zone crisis has derailed Sarkozy's hopes of using his G20 presidency to launch a fundamental rethink of the global financial system and its reliance on the U.S. dollar.   
China and the United States sparred this week over a U.S. Senate bill to press Beijing to raise the yuan's value, and the issue is likely to create a sideshow at the G20 talks, even if the euro zone crisis pushes it off centre stage.  
"China won't play a big role at the meeting," said He Fan, deputy head of the Institute of World Economics & Politics at the Chinese Academy of Social Sciences government think tank.
"China cannot do much over the European debt crisis. China will not buy European bonds on a large scale. There are not many choices out there. Italy is the biggest bond issuer in Europe, but I doubt China will buy its bonds. The question for China is how to safeguard its investment in Europe," He said.
He added that China could participate in a multilateral framework for rescuing European banks, such as via the IMF.
A G20 official told Reuters on his way out of talks on Thursday that China and Japan were both open to lending more funds to the IMF to help with the euro zone crisis.
Two other sources said several BRICS countries, notably India, China and Brazil, favoured bolstering the IMF's capital as a way to contribute to a rescue for Greece, but without altering voting rights in the lender.
Brazilian Finance Minister Guido Mantega also said this week that extra IMF support may be debated.
Copyright 2011 Thomson Reuters.

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Euro Depreciates From Five-Week High Against Yen as Regional Stocks Fall

The euro declined from a five-week high against the yen and fell versus the dollar as European stocks dropped, damping demand for the region’s assets.
The yen strengthened against 13 of its 16 major counterparts after a Chinese report showed export growth slowed in September, spurring concern the global economy is cooling. Australia’s dollar gained for a second day after a government report showed the jobless rate fell.
The euro weakened 0.4 percent to 106.12 yen at 9:26 a.m. London time, after rising to 107.05 yen yesterday, the highest since Sept. 9. The shared currency fell 0.3 percent to $1.3755. The yen rose 0.2 percent to 77.14 per dollar. The Australian currency gained 0.1 percent to $1.017.
The Stoxx Europe 600 Index of shares fell 0.8 percent.
China’s customs bureau said exports climbed a less than forecast 17.1 percent last month from a year earlier and the trade surplus shrank.

From www.bloomberg.com
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