Daily Market Review: G-7 Urged To Let Markets Set Currency Rates

 | Mar 06, 2013 06:34AM ET

Today’s highlights:

Halifax House Price Index (MoM) (GB, 08:00 GMT)

BoE Gov King Speaks (GB, 09:45 GMT)

GDP (QoQ) (EU, 10:00 GMT)

ADP Nonfarm Employment Change (U.S, 13:15 GMT)

Interest Rate Decision + Ivey PMI (Can, 15:00 GMT)

Beige Book (U.S, 19:00 GMT)

The U.S. Treasury Department’s top international official urged Group of Seven economies to avoid targeting exchange rates and let markets set currency levels, calling for full and timely data on the scale of nations’ interventions. “The G-7 pledged that exchange rates should float freely, except in rare circumstances where excess volatility or disorderly movements might warrant cooperation,” Lael Brainard, the undersecretary for international affairs, said at a conference in Washington yesterday.

Australia’s economy expanded in 2012 at the fastest pace in five years as resource investment and exports outweighed subdued manufacturing and construction. Gross domestic product grew 3.6 percent last year, the best performance since a 4.7 percent expansion in 2007, data from the Australian Bureau of Statistics showed.

European Union finance ministers neared an accord on a wide-ranging plan to strengthen bank capital requirements as they wrangled with U.K. Chancellor of the Exchequer George Osborne over proposed curbs to bankers’ bonuses. Other news is that Spain is backsliding on economic reforms, fueling risks for its banking system in the midst of an overhaul that faces “significant challenges,” the European Commission said. “Progress in delivering of some key product and services market reforms has been slow,” the Brussels-based commission said yesterday in its second review of Spain’s bank rescue program.

EUR/USD: The EUR/USD was trading slightly higher at 1.30614 at the time of writing after U.S. service-sector data defied negative expectations and fueled a rally in equities markets, which could be serving as a sign that traders are renewing risk appetite. However, investors should remain prudent on the pair and adopt a wait and see strategy ahead of the euro area’s gross domestic product, which probably fell 0.6 percent in the fourth quarter from the previous three-month period, according to the median estimate of economists surveyed by Bloomberg. The European Commission sees inflation at 1.8 percent this year and 1.5 percent in 2014. Peter Dragicevich, a Syndey-based currency economist at Commonwealth Bank of Australia (CBA) said that since the ECB’s last economic forecast in December, the euro has appreciated, so that could weigh on their outlook for inflation and the market may look to price in more ECB policy easing.

That probably could weigh on the euro into week’s end. Later in the day, in the U.S a report on ADP Nonfarm Employment Change forecast to show companies added positions. Firms added 170,000 positions in February, following a 192,000 increase the previous month, economists forecast in a Bloomberg News survey. In addition, the Federal Reserve will release its Beige Book report. The report will indicate the current economic conditions in each of the 12 Federal districts in the U.S. A higher than expected reading of the ADP Nonfarm Employment Change and positive outlook from the beige book should be taken as bullish for the USD. Market participant should closely monitor all the data set to release to today to get visibility on the pair. The resistance level is at 1.31637 and the support level is at 1.29670.