A Better Week

The information presented in this publication is purely for informational purposes and does not constitute investment advice, an offer to sell, or a solicitation to purchase, and should not be used as a basis or considered as an incentive to engage in any investment.

The macro point

The euro is currently on the rise, showing strong performances against the US dollar and the Japanese yen, for example. The monetary policy differential is now the main marker on the Forex. This may reactivate carry trade strategies that had fallen out of favor due to ultra-low rates in recent years. We have good news to share with you. Inflation in the United States has significantly slowed in February. The consumer price index, which serves as the main reference, came in at 5% year-on-year compared to 6% last February. This is the lowest annual increase since May 2021. Less than a year ago, inflation was still above 9% in the United States. The decline is not entirely a surprise. It mainly reflects the combination of two factors: the drop in energy prices and the base effect (which is also an important factor to consider to explain the inflation dynamic in the Eurozone). However, experts remain cautious. The recent decision of OPEC+, the oil-producing countries' cartel, to cut production risks driving up gasoline prices in the coming months. This could lead to inflation rising again and consumer spending being somewhat sluggish. It is known that the American consumer is very sensitive to any spike in pump prices (notably because there are almost no taxes on the other side of the Atlantic). This good figure (as it must be acknowledged that it is a good figure) does not, however, lift uncertainties regarding the short-term evolution of US monetary policy. In recent sessions, several members of the FOMC (the body responsible for rate policy in the United States) have oscillated between suggesting larger and smaller rate hikes to come. The president of the New York Fed, John Williams, indicated that the US central bank still has work to do to sustainably reduce inflationary pressures. He seems to opt for at least one more rate increase before a pause, which could be short depending on incoming macroeconomic indicators. Conversely, the president of the Chicago Fed, Austan Goolsbee (who is a voting member of the FOMC this year) seemed more cautious. He expressed concern about disruptions at the regional bank level that could slow US economic growth more than expected (due to a decline in credit granting). He therefore advocated for the utmost caution before raising rates again. Currently, the money market still mostly bets on a 25 basis point increase in the key rate next May. But things can change quickly. Nothing is set in stone. For the foreign exchange market, this means that at a minimum, high volatility will be present in the coming weeks on USD pairs. On the other side of the globe, the evolution of monetary policy is more certain, however. The new governor of the Bank of Japan (BoJ), Kazuo Ueda (successor of Kuroda) gave his first official press conference. It was a non-event. He carefully avoided opening the door to any short-term adjustment of the ultra-accommodative policy (which is astonishing while all other central banks have exited negative rate policies). He also indicated maintaining the yield curve control policy (this measure prevents any lasting rise on Japan's sovereign bonds). The next BoJ meeting, scheduled for April 27 and 28, should therefore not hold any major surprises. As long as Japan's monetary policy remains unchanged, we think the Japanese yen is not likely to sustainably rebound against the euro (unless geopolitical risk comes to the forefront). Many analysts expect Japan to gradually align with other central banks from the second half of this year. These are often the same who predicted a rate increase as early as last January. Clearly, it did not happen. Therefore, we refrain from any assumption based on nothing. As of now, Japan remains on the same monetary approach as in past years and nothing in the statements from officials indicates an imminent change.

Technical point

On the foreign exchange market, the differential in monetary policy has been the main driver of currency fluctuations. In connection with the decline in US inflation (as mentioned above), traders now anticipate that the European Central Bank could tighten its monetary policy more aggressively than its American counterpart, which has fueled interest in the single currency in recent sessions. From a technical analysis perspective, the EUR/USD could rise to the 1.1200-10 range in the medium term, given that there is no major resistance ahead that could slow the upward momentum. Unsurprisingly, the euro also gained significant ground against the Japanese yen (+1.7% over the last five sessions). Japan's ultra-accommodative monetary policy is a serious drag for the yen. The supports and resistances listed below indicate the respective low and high points within which prices are expected to move during the week.

	Weekly Supports		Weekly Resistances
	S2	S1	R1	R2
EUR/USD	1.0720	1.0856	1.1210	1.1455
EUR/GBP	0.8730	0.8792	0.9001	0.9099
EUR/CHF	0.9748	0.9789	0.9931	1.0022
EUR/CAD	1.4429	1.4574	1.4862	1.5002
EUR/JPY	142.88	144.97	149.15	152.80

Announcements to follow

There are many statistics coming up in the days ahead. But the reality is that few of them are likely to truly move the foreign exchange market. The PMI indicators at the end of the week for the month of April may marginally induce volatility on EUR pairs, but never in significant proportions. Inflation in the euro area is also on the agenda. This is the latest estimate which usually aligns with the previous one (in this case, the consensus is at 6.9% year-on-year). It will therefore be rather quiet on the indicator front and also from the central banks (since there are no significant meetings scheduled). However, we will always remain attentive to banking stress that could arise again. Below you will find the publications and events that are expected to have a major impact on the evolution of currency prices.

Day	Time	Country	Indicator	What to expect?
18/04/2023	11:00	ALL	ZEW Economic Sentiment Index (April)	Strong rebound expected to 17.1 from 13.0.
19/04/2023	11:00	EUR	Consumer Price Index (March)	Consensus at 6.9% year-on-year.
20/04/2023	14:30	USA	Philadelphia Fed Manufacturing Index (April)	Analysts expect a figure of -15.6 from -23.2 in March. Thus, a significant improvement.
21/04/2023	09:30	ALL	First Estimate of PMI Indicators (April)	The Manufacturing PMI (which is the most watched by the market) came out at 44.7 in March.