06:04 AM EDT, 09/25/2024 (MT Newswires) -- After a vulnerable start to the week, EUR/USD has come back big, said ING.

Efforts to reflate China have no doubt played a role -- as did the soft United States consumer confidence on Tuesday, wrote the bank in a note. There is very little on the European calendar on Wednesday, so EUR/USD range trading looks likely. However, the fact that EUR/USD is holding above 1.1100 is encouraging for modest EUR/USD bulls such as ING.

The Swiss central bank is scheduled to release its policy statement on Thursday and ING sees a 25bps rather than a 50bps cut -- primarily because the SNB has such little room to maneuver on the downside. Given that financial markets are pricing a 37bps cut this Thursday, EUR/CHF could sell off if ING were right with its 25bps call.

Perhaps the only way the SNB can verbally turn EUR/CHF now is by suggesting that there is no floor for the SNB policy rate -- and by implication that rates could go negative again. The bank very much doubts the SNB is prepared to do that and as such sees EUR/CHF trading towards the lower end of a 0.93-0.95 range.

After Tuesday's 25bps rate cut at Hungary's central bank, ING expects the same move in the Czech Republic on Wednesday from the Czech central bank. Wednesday's meeting is without a new forecast and the board will only discuss an internal update.

However, communication in recent weeks points to a 25bps rate cut to 4.25%. So the focus will be on forward guidance for the next meeting and especially next year, added the bank. Inflation in August was above the CNB's forecast by 0.4pp, which may see the governor stay on the hawkish side again.

Markets estimate three 25bps rate cuts by the end of this year and a terminal rate next year at 2.75%. This is below ING's forecasts. However, this is still a possible scenario for this year, while next year goes against the central bank's communication of the end of the cycle above the neutral rate of 3% for now.

As such, the market is strongly on the dovish side, but in the current conditions, ING forecasts it difficult to go against the market at the moment in the rates space but remain positive on the koruna (CZK), which the bank thinks will benefit the most from CNB's hawkishness. EUR/CZK jumped lower on Tuesday and is approaching 25.050.

ING believes the CNB can push EUR/CZK below 25.00 on Wednesday.