Event risk will be spread throughout the currency markets this week, with US services sector data and US non-farm payrolls likely to add to evidence that the country is facing recession, while rate decisions from the Bank of England and European Central Bank are forecasted to yield rate cuts.

US ISM Manufacturing – November 3

The Institute for Supply Management is expected to report at 10:00 ET that their survey of conditions in the manufacturing sector held below 50 - signaling contraction - for the third consecutive month to a seven-year low of 41.5. In fact, data from the Richmond Federal Reserve region and Chicago PMI all showed a continued deterioration during the survey period. That said, these are both very volatile reports, but given broadly weak domestic demand in the US, the risks are tilted to the downside for the ISM manufacturing release. The employment component will also be watched carefully as a gauge for Friday’s Non-farm Payroll report.

US ISM Non-Manufacturing – November 5

Conditions in US non-manufacturing sector - which accounts for approximately 70 percent of total economic activity in the country and includes retail, services, and finance - are anticipated to worsen in October as the Institute for Supply Management index is estimated to fall to 48.0.0 from 50.2. Indeed, consumer confidence remains exceptionally weak, as the Conference Board’s measure fell to a record low of 38 during the same month. The key thing to watch is to see if ISM Non-Manufacturing falls below the 50 mark - signaling contraction - as the news will only add to bearish sentiment on the US economy following the 0.3 percent contraction in US Q3 GDP.

Bank of England Rate Decision – November 6

The Bank of England is widely anticipated to follow up their October 8 rate cut with yet another 50bp cut to 4.00 percent on November 6 at 7:00 ET, as the UK economy tips into recession and the financial markets remain unstable. While UK CPI remains well above the BOE’s 2 percent target and 3 percent ceiling at 5.2 percent, weaker commodity prices have led inflation outlooks around the world to drop rapidly. Furthermore, BOE Monetary Policy Committee member David Blanchflower, who has long been the most dovish of all the members since joining the Committee in mid-2006, was staunch in his bias as ever when he noted that he thought deflation was a bigger concern than inflation, and that CPI may fall from the September reading of 5.2 percent down to 1 percent, or could even go negative. Mr. Blanchflower also said that UK interest rates must be lowered significantly and quickly. If the BOE does indeed cut rates, the news will likely weigh on the British pound. However, if the central bank signals that they may leave monetary policy unchanged going forward, GBP/USD could easily surge higher.

European Central Bank Rate Decision – November 6

A Bloomberg News poll of 50 economists shows that the European Central Bank is very likely to cut rates by 50bps to a nearly 2-year low of 3.25 percent on Thursday at 7:45 ET. Indeed, economic conditions have deteriorated rapidly throughout the region, with the October PMI readings showing that business activity in the Euro-zone’s manufacturing and services sectors has been contracting for five consecutive months. Meanwhile, Eurostat’s estimate of Euro-zone CPI shows that price growth eased to a 3.2 percent pace in October from 3.6 percent. Given European Central Bank President Jean-Claude Trichet’s more bearish stance on the economy and the bank’s participation in the October 8 coordinated rate cuts, the indications of cooler inflation pressures gives the ECB even more room to cut rates on Thursday. The reaction of the euro, however, may depend more on Mr. Trichet’s post-meeting press conference at 8:30 ET as his speeches tend to be very straightforward and biased. If Mr. Trichet suggests that the ECB will cut rates further, the euro is likely to take a hit but if he signals a more neutral stance going forward, the currency could actually rebound.

Canadian Net Employment Change, US Non-Farm Payrolls – November 6

Though often finding its thunder has stolen been stolen by its US counterpart, history shows that the Canadian employment change is consistently a top market moving indicator. Employment in Canada is a clear sign of economic health and an indicator of expansion going forward. However, the reading for September showed that the Canadian labor markets added on a record 106.9K workers, and there is a chance this will be revised lower or the October reading will show a sharp contraction at 7:00 ET. This will be followed at 8:30 ET by US non-farm payrolls (NFPs), which haven’t consistently produced a strong reaction from the US dollar. Nevertheless, as one of the most watched US economic indicators, the release of the index is worth keeping an eye on. NFPs are forecasted to contract for the 10th consecutive month, by 180K, while the unemployment rate is anticipated to jump to a more than 5-year high of 6.3 percent from 6.1 percent. Overall, both releases present major event risks for the Canadian dollar and US dollar, leaving the USD/CAD pair in particular prone to heavy volatility.

Antonio Sousa is a Currency Analyst for FXCM.