06:13 AM EDT, 04/07/2025 (MT Newswires) -- EUR/USD has retreated from its spike high to 1.1140, but remains in demand, said ING.

Supporting factors for the euro are its role as a liquid alternative to the US dollar and the fact that the eurozone runs a 3% current account surplus, wrote the bank in a note. Standing against the euro is the eurozone being an open, trade-driven economy.

In focus this week will be what the Europeans do when it comes to retaliation, stated INH. Trade leaders are meeting in Luxembourg on Monday.

From the sounds of it, the European Union is going to be far more cautious and selective than the blunt 34% reciprocal tariff announced by China on Friday.

The global trade war has seen the low point for the European Central Bank's easing cycle repriced closer to 1.50%. That said, EUR/USD two-year swap differentials have narrowed into levels last seen in early October and should serve to keep EUR/USD supported around 1.09 as this financial dislocation plays out, pointed out the bank.

Again, 1.11/12 is major medium-term resistance, and markets probably require some very negative U.S. news to break that this week.

Central and Eastern European (CEE) foreign exchange came under pressure again on Friday following a dovish repricing in the rates market. ING sees the rate differential tightening alongside negative sentiment from the equity market and some correction in EUR/USD downwards.

As a consequence, the bank doesn't believe that the CEE region is past the sell-off yet. In ING's view, the Polish zloty (PLN) and Hungarian forint (HUF) are particularly exposed. PLN due to positioning, valuations and a dovish turnover for the Poland's central bank (NBP); the HUF due to usual sensitivity to global markets and highest exports to the U.S.

European equity markets have been good navigators of EUR/HUF for the bank this year, and current levels point to a further move up to 410. Tuesday's inflation print, however, will also be important.

Elsewhere, ING still retains its bias for PLN/CZK down, reflecting the different stages of the cutting cycle across the CEE region.

After the Australian dollar, the Norwegian krone (NOK) has been the worst-performing G10 currency over the last week, pointed out the bank. It has taken a big hit both from the fall in oil prices -- an OPEC+ supply increase was a big shock here -- and the fact that Norwegian interest rates have some of the furthest fall to given the previously hawkish stance of Norges Bank.

What may well impact the NOK as well is declining liquidity, said ING. This generalized rise in volatility, increasing investors' value-at-risk metrics and forcing deleveraging, will impact foreign exchange liquidity. The NOK traditionally performs very poorly in illiquid environments, which could be the story this week.

ING expects investors -- those with the ability to establish new positions -- to be looking at a pair like NOK/JPY. Were things to get really ugly this week in financial markets, NOK/JPY could make a break towards 12.00.