06:13 AM EST, 02/05/2025 (MT Newswires) -- ING sticks to its call that EUR/USD will start to lose support once it crosses 1.040, as the euro remains broadly unattractive from a macro fundamental perspective and United States President Donald Trump has indicated that the European Union should be next on the tariff list.

A EUR:USD two-year swap rate gap at -185bps is a mirror of that -- via the monetary policy channel -- and a key disincentive to chase EUR/USD much higher, wrote the bank in a note.

Domestically, the eurozone calendar is relatively quiet for the remainder of the week, pointed out ING. Trade news will dominate EUR/USD, although the bank will be interested to hear whether the slightly hotter-than-expected inflation figures trigger some minor change in the narrative coming from European Central Bank officials.

ECB Chief Economist Philip Lane speaks later Wednesday.

EUR/JPY downside remains interesting, stated ING. Japanese nominal cash wages accelerated to 4.8% year over year in December, well above the 3.7% consensus. Real earnings were up 0.6% year over year. That reinforces ING's call for two rate hikes by the Bank of Japan this year and improves the outlook for the yen.

Wenesday, Poland's central bank (NBP) is likely to leave rates unchanged again at 5.75% in line with expectations and market pricing. The decision itself should be a non-event.

Investors may get some information from the statement, which last sent a hawkish signal in January. However, the main event will be Governor Adam Glapinski's press conference on Thursday, added ING. The statement and press conference in January were strongly hawkish.

We can probably expect something similar on Wednesday and Thursday. However, it's hard to imagine at this point what more the governor might add to the hawkish message from January. ING believes the governor's hawkishness has run out and the market may see a more dovish NBP this week.

Despite all this, foreign exchange is the main winner of the whole story, with EUR/PLN reaching its lowest levels in recent weeks since pre-COVID despite all the global volatility. In the bank's view, nothing will change on foreign exchange at the moment.

Due to the collapse in EUR rates, the interest rate differential has widened again and justifies the current EUR/PLN lows in the 4.200-220 level in ING's view. Zloty rates are pricing in roughly 80bps of rate cuts for this year with the first move in July. The market is visibly focused on a peak in inflation and given the bank's current knowledge of the situation, pricing seems "fair."