06:04 AM EDT, 10/29/2024 (MT Newswires) -- When liquidity becomes a discriminating factor in foreign exchange, the euro can find some support in the crosses, including through the unwinding in Nordics foreign exchange positions that are generally traded vis-as-vis the euro, according to ING.

The bank remains on the lookout for any sharp underperformance of Norway's krone, which is often a thermometer of foreign exchange liquidity conditions.

ING said it heard unusually hawkish-leaning comments by a neutral European Central Bank Governing Council member -- Luis de Guindos -- on Monday, which is bucking the otherwise dovish trend in post-meeting communication. Guindos stressed how the inflation outlook is "surrounded by substantial risks," which lifts some emphasis from growth concerns and risks of undershooting the inflation target.

Guindos' comments aren't enough to turn the tide in the dovish repricing across the EUR curve and the USD:EUR two-year swap rate spread remains at the widest since April, around 160bps -- 70bp wider than a month ago, stated the bank. That remains consistent with further pressure on EUR/USD, and despite risks now looking more balanced for the pair, they are still tilted to the downside in the near term.

The eurozone and ECB speaker's calendar is empty on Tuesday.

Sterling is in full wait-and-see mode ahead of Wednesday's Budget announcement by Finance Minister Rachel Reeves. There are two technical factors to consider ahead of a potential market-adverse reaction in sterling on Wednesday, pointed out ING.

First, there is no political risk premium priced into sterling at the moment, with the bank's model returning a short-term EUR/GBP fair value at 0.834. In previous instances of political/gilt-related turmoil in the United Kingdom, the EUR/GBP risk premium was around 3%-5%.

Secondly, the latest CFTC figures show speculators are still extensively long on sterling. As of last Tuesday, net-long GBP positions were the largest in G10 (32% of open interest), having resisted the rotation back into the US dollar observed in other developed currencies.

GBP/USD continues to look vulnerable ahead of Wednesday's Budget event and next week's election in the United States, and risks remain skewed to a move to 1.2800-1.2850.

The Czech market is back from a public holiday and investors will likely see more central bank (CNB) comments on Tuesday or Wednesday ahead of Thursday's blackout period, added ING. The koruna (CZK) came under pressure Monday since domestic demand has been missing from the market while the currency has been catching up with the weakness of Central and Eastern European (CEE) peers in the previous days.

EUR/CZK stood above 25.350 for the first time in two weeks. Still, the CNB forecasts 25.20 on average for Q4 and the weakening in recent days shouldn't be a major factor in the November decision.

Overall, ING sees that the CEE region remains under pressure and it doesn't expect much change here pending the outcome of the U.S. election. At least a stabilization of EUR/USD could bring some relief to CEE currencies.

Overall though, the focus remains on EUR/HUF, which closed at new highs on Monday, heading slowly towards 405. EUR/PLN will be watched as the market accepts the increase in Poland's budget deficit and the outcome of the POLGBs auction, said the bank.