This week, a slew of inflation reports will be released from the US, UK, Euro-zone, New Zealand, and Canada and the news is likely to spark volatility for each country’s respective currency upon release. However, carry traders should keep their focus trained on the US equity markets, as first quarter earnings reports scheduled to hit the wires throughout the week could shake things up.

UK Consumer Price Index – April 15
On Tuesday, UK CPI figures are anticipated to show stronger inflation pressures, with the index expected to rise 0.6 percent in March from the month prior and 2.6 percent from a year earlier. If anything, there are significant upside risks for this particular release, as UK PPI showed prices accelerating at the fastest pace since 1991. The Bank of England cut rates as recently as April 10 by a quarter point to 5.00 percent, and while there were likely Monetary Policy Committee members that voted for a 50bp cut in light of the ultra-tight credit market conditions and housing slump, inflation remains of major concern. As a result, very strong UK CPI figures could lead the British pound to rally upon release – similar to the jump in the pair witnessed following Monday’s UK PPI release at 4:30 EDT.

German ZEW Survey – April 15
Sentiment amongst Germany’s investors is expected to improve slightly in April, according to the ZEW survey. The figure is scheduled to be released at 05:00 EDT, and this release tends to be a significant market-mover for the EUR/USD pair on a very short-term basis. Given the instability in the financial markets over the survey period along with signs that the European Central Bank will not even consider cutting rates, there is a risk that the ZEW reading could actually be a bit disappointing.

US Consumer Price Index, Fed’s Beige Book – April 16
The US headline consumer price index for the month of March is expected to rise 0.4 percent to leave the annual rate of growth at 4.0 percent. A bulk of the increase will likely be the result of food and energy price gains, especially as oil traded above $100/bbl for the entire month. As a result, core CPI is anticipated to show a milder 0.2 percent rise for the month and an a pick up in the annualized reading to 2.4 percent. However, if any of these figures surprise to the upside or downside, the markets will respond accordingly and the moves could be dramatic. On the other hand, if the CPI reports are released in line with expectations, Treasuries, the US dollar, and US stock markets may simply trade quietly until the release of the Fed’s Beige Book at 14:00 EDT. As a summary of economic conditions throughout each of the 12 Fed districts, the report could give key insight into how the FOMC will vote on April 30. Some of the key factors to watch will be employment, consumption, and inflation data, especially as labor markets have deteriorated and Monday’s Advance Retail Sales report showed that spending has increased purely on the back of gasoline receipts.

Canadian Consumer Price Index – April 17
The release of Canadian CPI data is likely to remind the markets of the Bank of Canada’s dovish bias following their 50bp rate cut in March, as the headline CPI reading is expected to ease back to 1.5 percent, while the Bank of Canada’s core CPI measure is anticipated to fall further below their inflation target of 2.0 percent to 1.4 percent. Indeed, the rapid appreciation of the Canadian dollar throughout 2007 has led import prices to plummet, which explains why CPI figures have weakened so much in recent months. In fact, the Bank of Canada’s monetary policy statement in March noted that they judge “that the balance of risks around its January projection for inflation has clearly shifted to the downside, and, as a result, the Bank is lowering the target for the overnight rate. Further monetary stimulus is likely to be required in the near term to keep aggregate supply and demand in balance and to achieve the 2 percent inflation target over the medium term.” While the markets are betting on a weak CPI reading, there is potential that the surge in oil over the course of March will buoy the headline figure, but either way, if Thursday’s inflation data proves to be unexpected, the Canadian dollar is likely to respond immediately, especially as the central bank is forecasted to cut rates by 50bp next week.

Volatility May Return to the US Stock Markets Amidst Q1 Earnings
This week we will continue to see corporate earnings for the first quarter released, including those from Washington Mutual, BlackRock, JP Morgan Chase, Google, Merrill Lynch, Citigroup, and Honeywell. Disappointments are likely, but any sort of surprise leaves US equity indexes like the DJIA prone to sharp moves and high volatility. Forex traders should be aware of this price action as well, since major movements in the stock markets tend to impact carry trades like USD/JPY and GBP/JPY.

Antonio Sousa is a Currency Analyst for FXCM.