06:16 AM EDT, 09/13/2024 (MT Newswires) -- EUR/USD is eyeing 1.11 again after the combined support of a not-dovish-enough European Central Bank and rising dovish bets on the United States Federal Reserve, said ING.

It's "abundantly clear" that ECB President Christine Lagarde is fine with keeping communication quiet and predictable at this stage, offering little to no guidance, wrote the bank in a note. At the press conference, she said the direction for policy rates is "pretty obvious" -- more cuts -- but what truly resonated with financial markets is the firm reiteration of data dependency.

The euro overnight indexed swaps curve is now pricing in some 5bps-6bps higher year-end deposit rate compared with Thursday: 3.10% from the current 3.50%. A 50bps move by the Fed can surely convince markets to price in 50bps of easing in the eurozone too this year, but the net impact on the EUR:USD swap rate gap would be neutral, so that support for EUR/USD from a rates perspective should remain intact, stated ING.

There are two ECB speakers to keep an eye on Friday amid an otherwise light eurozone calendar. Lagarde speaks again at an event in Budapest, and before her Finnish central bank chief Olli Rehn -- a neutral member -- will participate at an event. Comments from Germany's Joachim Nagel overnight Thursday were quite cautious and merely justified the rate cut with recent data, pointed out the bank.

ING can see EUR/USD breaking above 1.110 in the next few days on the back of dollar weakness. There is no strong technical resistance before the 1.120 August highs.

Sterling (GBP) remains in a strong position, according to ING. The Bank of England is deemed unlikely to cut rates next week, and the data has so far prevented the sterling market from making the kind of dovish pivot investors saw in USD swaps. The 1.3250 August highs in GBP/USD appear well within reach at this stage.

Looking at EUR/GBP, a tentative bounce earlier this week proved to be quite short-lived. The ECB-BoE and eurozone-United Kingdom growth outlook divergence continues to weigh on the pair, and while sterling is starting to look expensive in relative terms, a sustainable recovery to the 0.85+ levels likely requires some strong dovish hints by the BoE.

The next big event for GBP is the consumer price index figures to be released on Wednesday, one day before the BoE announcement. Until then, global foreign exchange dynamics will dominate, and sterling should remain broadly supported, noted the bank.

ING said it has pointed out how EUR/NOK was substantially expensive close to the 12.0 mark, and that the risks of a correction lower were very high. That correction has materialized and it is clear that the key engine for a Norway krone (NOK) recovery at this stage is more dovish bets on the Federal Reserve.

At 11.85, EUR/NOK remains expensive, but the bank still has to stress how the risks of speculative dynamics -- favored by slimmer NOK liquidity -- will keep volatility on both sides quite elevated. ING believes Norges Bank will remain focused on helping the krone and refrain from sounding dovish at next week's meeting.

Ultimately, that can favor a further EUR/NOK depreciation to 11.60-11.70 and potentially to even lower levels if the Fed cuts by 50bps, according to the bank.

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