05:58 AM EDT, 10/04/2024 (MT Newswires) -- ING retains a "moderate" bearish bias on EUR/USD in the near term, even if the bank's baseline expectation for a tick higher in United States unemployment should offer a respite on Friday.

Ultimately, the less supportive rate differentials, risk sentiment instability and a turbulent European Union budget season mean EUR/USD could stay under pressure, stated ING. 1.1000 is a "big" support, so a break lower could mean the correction extends to 1.09 relatively quickly.

The eurozone calendar doesn't include market-moving data on Friday, but there are quite a few European Central Bank speakers to watch. After the relatively dovish tone by Isabel Schnabel earlier this week, the bank can reasonably expect other hawks to give in to dovish pressure and no longer push back against an October cut.

Elsewhere in Europe, ING has seen a major unwinding of sterling longs after the dovish comments by Bank of England Governor Andrew Bailey this week. CFTC figures showed sterlng was the most overbought G10 currency by speculators as of last week, with a net-long positioning worth 35% of open interest.

That suggests there is further room for position squaring to weigh on sterling unless BoE communication or data force another hawkish repricing in the Sonia curve. The bank still thinks 1.30 can be hit in GBP/USD in the coming weeks.

The Polish zloty should be the most defensive currency in the Central and Eastern European region amid the risk-off sentiment and should also have the easiest path to start appreciating again, wrote the bank in a note. Although ING believes nothing changes that, Thursday's press conference at Poland's central bank altered the picture slightly.

The governor surprised with another dovish move and confirmed that the first half of next year is the time for rate cuts. Although ING sees current market pricing as still very dovish, given the spike in rates in recent days it hasn't been hard for the market to price back some rate cuts. However, the result has been a deterioration in rate differentials while the rest of CEE remains at record highs.

The main event in the CEE region on Friday is the meeting of the central bank of Romania. ING predicts rates to remain unchanged at 6.50%, in line with expectations, but the survey is split.

On one side is the rebounding credit market, wages and loose fiscal policy speaking against further rate cuts. On the other, inflation is lower than expected and the economy is surprising on the negative side. The global picture is also mixed with the U.S. Federal Reserve cutting rates and the situation in the Middle East pushing up oil prices. Foreign exchange forwards suggest a market on the dovish side for Friday's decision, added the bank.

However, it's hard to expect any reaction from the leu (RON) which remains firmly anchored just below 5.00 EUR/RON and ING doesn't estimate any changes here in the near term. At least the front of the Romania government bond curve could see some support if the NBR continues to cut rates for the third straight time.

On the other hand, in the bond space, the focus remains mainly on fiscal policy. Speculation Thursday of the ministry of finance's agreement with the European Commission on this year's deficit at 7.9% of gross domestic product can hardly be taken as good news, given that it is more at the upper end of market expectations, implying further bond issuance this year, according to the bank.