06:11 AM EST, 11/27/2024 (MT Newswires) -- EUR/USD struggled to rally on Tuesday despite some United States macroeconomic data that wasn't very strong, said ING.

Holding the euro (EUR) back was probably the fallout on the European auto sector on Tuesday as it reacted to the prospect of U.S. President-elect Donald Trump following through on his pre-election threats, wrote the bank in a note. German car maker equity prices were off 3-6% yesterday.

There isn't a lot on the eurozone calendar on Wednesday and the best chance of a EUR/USD move will be on the back of the U.S. inflation data, stated ING. EUR/USD still looks quite oversold based on its 6%-7% two-month drop, which suggests any dip towards the 1.0400/0425 area on Wednesday could be enough of a decline before any potential month-end rebalancing US dollar (USD) sales emerge.

With one-week deposit rates at 4.75% and the highest in the G10 space, sterling may be deriving some inflows as markets make up their mind about the speed and magnitude of Trump's policy agenda, according to the bank. Additionally, the Bank of England rate profile continues to get traded closer to the Federal Reserve than the European Central Bank and suggests sterling should outperform against the euro.

ING has a year-end EUR/GBP at 0.83 -- not too far from current levels.

However, the risk to that forecast probably lies more to 0.82 than 0.84 since the United Kingdom is less exposed on the trade side and the BoE has yet to abandon its concern over late-cycle inflation, pointed out the bank. The BoE's Chief Economist Huw Pill was the latest Monetary Policy Committee member Tuesday to cite the ongoing focus on service inflation.

In both the Polish zloty (PLN) and Czech koruna (CZK) markets, ING expects the "usual paying flow" in rates coming from hedging for bond auctions. This could support foreign exchange, which was already looking for some gains again Tuesday with a pause in the USD rally and some repricing of rates in both markets.

The bank remains bearish on Central and Eastern European currencies in general due to its EUR/USD view, and so sees the current stronger PLN and CZK as an opportunity for the market to build new short positions rather than a turnaround story.