Forex Trading: Next Week’s Highlights Of Events And Economic Releases

Next week will be dominated by 4 interest rate announcements from around the globe.  The all important US Unemployment Report will also be announced on Friday.  Eurozone and UK PMI data will be announced and US Car Sales will bring the auto makers back to center stage.

Below is a review of the key events and economic releases:

The Reserve Bank of Australia get the interest rate cut bandwagon going with a cut of 75 to 100 basis points on Monday night at 10;30 PM EDT.  The rate peaked at 7.25% before heading back down starting in September. Since that time the bank has cut by 25, 100 and 75 basis points at successive meetings.  The current rate of 5.25% is considered too high given the inflationary and growth expectations into 2009.

The Reserve Bank of New Zealand is expected to slash rates by 150 basis points on Wednesday at 3:00 PM.  The cut would be the 3rd in succession.  The peak was at 8.25%.  Rates started coming down in July when the central bank cut rates by a surprise 25 basis points.  Since then they have cut by 50 and 100 points at successive meetings. The current rate is 6.5% and the thought is the banks policy is too high given the slowdown in global demand and prices.  At cut to 5.0% would bring the level to December 2003 levels. 

The Bank of England surprised the market last week with a 150 basis point cut to 3.00%.  The rate represented the lowest level since 1954.  It was in reaction to expectation of sharply lower inflation and growth ahead.  After the cut, the Inflation Report and comments from BOEs King suggested that further cuts were warranted.  The market has priced in another 100 basis points and a further 100 basis points in 2009.  This would bring the rate to the lowest level since at least 1950.

At 7:45 PM the ECB will announce their interest rate decision.  The expectation is a cut of 75 basis points.  However, I would not be surprised with a cut of 100 basis points.  The ECB has been preoccupied with the level of inflation in their economy.  Today, the Flash CPI estimate for November was released and fell sharply to 2.1% from 3.2% last month. Moreover, the expectation going forward is a continuing decline in the level of YoY inflation as the spikes from last year are reversed.  This should bring the YoY inflation rate well below the 2% floor targeted by the ECB.   The decline should give the central bank a window to cut aggressively and finally address growth which has a number of countries in a recession.  Failure to do so, should disappoint the market.  Trichet will have his usual press conference at 8:30 AM.  Also, the ECB is expected to announce the new inflation and growth projections.  The expectation is for sharply lower estimates.

The Friday US Unemployment Report is expected to be the worst since October 2001 when 325,000 jobs were lost.  The estimate of -323,000 is not far off that level and would be the 2nd largest decline since 1990.  If the estimate is correct, the US would have lost nearly 1 MM non farm payroll jobs in the last 4 months.  The decline would be the 11th in a row.  The pace of job losses has reached a new high level and is continuing to accelerate.

The Unemployment Rate is expected to rise to 6.8% from 6.5%.  Like the NFP, this too is accelerating as the trickle down of job losses, is leading to reduced spending and even more unemployment.  The economy has not gotten to a point yet where it can be said with certainty, job losses have stopped.

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