06:20 AM EDT, 09/06/2024 (MT Newswires) -- The news of the week in the eurozone is that French President Emmanuel Macron appointed former Brexit Chief Negotiator Michel Barnier as prime minister, noted ING.

The euro and French bond spreads didn't react to the news, which is understandable given broad expectations for a moderate figure in the PM role and recent very muted sensitivity to European Union political developments -- the German regional election surprise was a case in point --wrote the bank in a note.

Barnier's appointment can be EUR-positive on the margin ahead of an intense EU budget season over the next couple of months, stated ING. The fact that a candidate was finally picked is a signal that the more fringe parties in the French Parliament are opening up to dialogue.

Ultimately though, the euro will react to facts more than expectations on the alarming French fiscal situation, and ING isn't ready to pencil it in as a EUR/USD bullish factor before more clarity on budget negotiations -- and each party's priorities -- emerges.

For now, EUR trading remains a strict function of United States macroeconomics developments, pointed out the bank. The range of potential swings in EUR/USD is wide on Friday. If ING's forecasts for non-farm payrolls forecast at 125,000 and unemployment at 4.4% is right, EUR/USD can take a decisive leap back to the upper half of 1.11-1.12, which can be the prevailing range into the Sept. 18 FOMC.

The eurozone calendar will hardly move the euro on Friday. There are no expected revisions in Q2 GDP/employment final figures, and either way, those are backward-looking indicators that should not influence the European Central Bank's path to a likely 25 basis point rate cut next week.

Thursday, the governor of Poland's central bank (NBP) revised forward guidance in a dovish direction, suggesting a rate cut in the middle of next year or when inflation is heading towards the target. Still, the governor tried to stress the hawkish arguments, but the change in dovish direction was clear, according to ING.

However, financial markets are already on the dovish side and although at the start of the conference, it appeared markets would start more rate cuts, Thursday's trading remained almost unchanged while Central and Eastern European (CEE) peers ended rates significantly lower under pressure from core markets. As a consequence, the first rate cut remains priced in for December this year, but with such a shift in rhetoric and core market conditions, the market has struggled to move the zloty (PLN) rates down too.

Objectively, ING leaves the forecast unchanged -- first rate cut in Q2 2025 and a total of 100bps next year, which is also where the governor's tone shifts.

EUR/PLN ended higher Thursday following a dovish tone but still near the upper end of the bank's 4.270-280 range, and although rates may move lower again and push PLN weaker, ING would rather expect it to remain near current levels. On the other hand, after Thursday's move in rates, the bank is turning tactically bearish on Hungary's forint (HUF) and Czech Republic's koruna (CZK), where rates outperformed the core markets Thursday for the first time in a while, leading to a "significant" deterioration in the rate differential.

In the case of EUR/HUF, ING has been pointing to a reversal soon within its 390-400 range for some time and with more headlines from Hungary's central bank (MNB) and the government in recent days, ING believes now is the right time to see EUR/HUF higher with 394.5 as the first stop.

In the case of EUR/CZK, the bank is expecting a move below 25.00, but it looks like markets will have to wait a bit longer for the Czech central bank's (CNB) meeting at the end of September, which could be an opportunity, but after Thursday's rate move ING sees the first move up above 25.10.