Trading Week Outlook: Feb. 6 - 10

As the market still tries to decide how to trade the U.S. dollar while gauging QE3 odds following the better-than-expected employment report, the week ahead will shift the focus back to the euro as traders ponder the next move by the European Central Bank.

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe.

1. CHF- Swiss National Bank Foreign Currency Reserves, Mon., Feb. 6, 3:00 am, ET.

Despite the shake-up in leadership at the Swiss National Bank, the interim chief Thomas Jordan once again made it clear last week that the bank “will enforce the minimum exchange rate of 1.20 CHF per euro with the utmost determination.” The reserves report will shed some light on the amount of firepower at the disposal of the Swiss central bank in case the market decides to test their commitment to support the euro’s floor which was established last September.

2. AUD- Reserve Bank of Australia Interest Rate Announcement, Mon., Feb. 6, 10:30 pm, ET.

In the aftermath of another disappointing jobs report from Australia and the unexpected drop in inflation in Q4 2011, the Reserve Bank of Australia should feel comfortable with another 25 bps rate cut which would bring the benchmark interest rate down to 4.0%. The Australian dollar has taken full advantage of the dovish Fed outlook and the broad U.S. dollar weakness, but if not yet fully priced in, a rate cut which erodes some of the Aussie’s yield advantage, could trigger a long due price correction of the Aussie dollar’s recent gains against the greenback.

3. NZD- New Zealand Employment and Unemployment Rate, the main measures of labor market conditions, Wed., Feb. 8, 4:45 pm, ET.

Just as the Aussie dollar, the Kiwi has staged a nice rally against the U.S. dollar in recent weeks, but it looks a bit stretched. Following the less hawkish Reserve Bank of New Zealand statement and outlook, a weaker-than-expected employment report could offer another reason for the New Zealand central bank not to be in a hurry to hike rates, giving traders a reason to take some NZD profits off the table.

4. CNY- China CPI- Consumer Price Index, the main measure of inflation in the world’s second largest economy, Wed., Feb. 8, 8:30 pm, ET.

Inflationary pressures have headed lower as a result of the Chinese government’s attempts to cool things off and the People’s Bank of China’s rate hikes which have been successful in slowing the economy. The inflation report will be an evidence of that as the consumer price index declines for another month to 4.0% y/y from 4.1% y/y. Lower inflation reduces the odds of further tightening by the Chinese central bank, which could give a bit of a boost to the currencies down under, considering that China is Australia’s largest trading partner and the second-largest trading partner of New Zealand.

5. GBP- U.K. Industrial Production, the main gauge of industrial activity measuring the output of factories, mines and utilities, Thurs., Feb. 9, 4:30 am, ET.

The improvement in the manufacturing index should also be reflected in the U.K. industrial production report as the industrial output recovers from the 0.6% m/m drop in November with an increase by 0.2% m/m in December.

6. GBP- Bank of England Interest Rate Announcement, Thurs., Feb. 9, 7:00 am, ET.

With the current asset purchases program concluding in early February, the Bank of England would be likely to keep the benchmark rate unchanged at the record low 0.5% level, but might announce an expansion of its quantitative easing operations which could be set to resume as early as March. The previous 75 billion increase was considered by some as a "vote of no confidence" in the EU leaders' ability to deal with the debt crisis. It would be interesting to see if the Monetary Policy Committee members continue to share that view. As far as currency impact, it would not be shocking to see some selling pressures starting to build on the GBP on expectations for more quantitative easing ahead of the bank's monetary policy meeting.

7. EUR- European Central Bank Interest Rate Announcement, Thurs., Feb. 9, 7:45 am, ET.

Still focused on stimulating growth and with inflation being a non-issue, the European Central Bank could afford to be even more accommodative. Although less likely at the February meeting, another rate cut (or two) in the near term would not be a surprise, especially if the Euro-zone economic conditions deteriorate further. Despite of the recent optimism rally and the market-wide assault on the USD following the dovish Fed statement, debt crisis woes, coupled with expectations for more rate cuts and further expansion of the ECB balance sheet, should weigh on the EUR.

8. CHF- Swiss CPI- Consumer Price Index, the main measure of inflation preferred by the Swiss National Bank, Fri., Feb. 10, 3:15 am, ET.

Deflation and slow economic growth because of the strong franc are the main issues facing the Swiss economy and the Swiss National Bank which had to resort to extraordinary measures to weaken its currency. With the inflation gauge expected to spend another month deeper into deflation territory at -0.8% y/y in January from -0.7% y/y in December, the odds will remain high that the Swiss National Bank might be forced into doing more to weaken the franc in the near future.

9. USD- U.S. Trade Balance of the difference between imports and exports, Fri., Feb. 10, 8:30 am, ET.

The five-month high in the U.S. trade deficit was one of the weak spots in the U.S. economic data last month and this alarming trend could continue with the trade deficit rising for another month to $48 billion in December from $47.8 billion in November.

10. USD- U.S. Consumer Sentiment, the University of Michigan's monthly survey of 500 households on their financial conditions and outlook of the economy, Fri., Feb. 10, 9:55 am, ET.

After a better reading of 75.0 in January, the preliminary estimate for February is forecast to show the U.S. consumer sentiment index retreating to 74.3. Following the surprisingly dovish Fed and the unexpectedly strong jobs report, the U.S. economic data must continue to demonstrate resilience in order to keep QE3 odds reduced. Otherwise, the U.S. dollar could continue to feel the pressure.