USD: More near-term upside ahead

Services data from the US later today will likely be supportive of the dollar.

USD: Solid US ISM Non-manufacturing to give more support to USD

The decision by the Chinese authorities to lower the GDP growth target for 2019 to a range of 6.0-6.5% weighed on equity markets overnight. We expect its impact to be fairly limited and constrained to today’s price action. This is because such a decision doesn’t come as new news and is line with consensus and ING forecasts for China GDP growth this year at 6.2% and 6.3%, respectively. Rather, more focus will turn to the US Februrary ISM non-manufacturing survey later. Our economists are looking for a modestly-above-consensus reading as US domestic demand remains strong and services data has been affected less by global trade tensions. This suggests more upside to the US dollar today, with DXY likely to move above yesterday’s high of 96.80.

EUR: Not much upside at sight

The expected rebound in eurozone retail sales is unlikely to provide much upside to EUR/USD today as (a) it is unlikely to change the tone of the upcoming European Central Bank meeting, which will likely strike a cautious tone (as per our ECB Preview); (b) the current strong USD environment and the expected rise in US wage growth on Friday make long EUR/USD positions unattractive on a short-term basis.

GBP: Soft PMI Services to weigh on GBP today

After giving up all its early day gains yesterday, we see further downside to sterling today. After the decline in February UK PMI manufacturing last week, our economists expect UK PMI services to slip below the psychological 50 mark today, signalling an economic contraction, as Brexit uncertainty continues to weigh on UK economic prospects. As per Delaying Brexit, the currently clouded economic outlook is unlikely to change if the UK government opts for a short-term Article 50 extension, such as three months (in turn making the upside GBP potential limited). The soft UK PMI Services should bring EUR/GBP further above the 0.8600 level today.

SEK & NOK: Feeling the negative spillover from lower EUR/USD

The Swedish krona and Norwegian krone have been the key underperformers of the week, with both currencies feeling the negative spillover from a lower EUR/USD vs their dollar block G10 activity peers. Also, to the extent to which investors are concerned about the dovish ECB March meeting, this may negatively affect market expectations for Scandies' central bank tightening. We continue to prefer NOK to SEK on the basis of a more hawkish Norges Bank vs Riksbank as well as our constructive outlook for oil prices. We target NOK/SEK at 1.1000. With the Fed likely to hike in 3Q, we expect the G10 low yielders like SEK to continue underperforming and target EUR/SEK at 10.75 in 2Q – a new post crisis high.

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