A Break and Off We Go! The information presented in this publication is provided purely for informational purposes and does not constitute investment advice, an offer to sell, or a solicitation to buy, and should not in any case be used as a basis or considered as an incentive to engage in any investment. The macro point Central banks have tried, with varying success, to map out a roadmap for the coming months. However, market participants have not always been convinced. The reality is that the level of uncertainty regarding the economic trajectory has rarely been so high. In this context, the right approach is to minimize risk and adopt the right foreign exchange hedging strategy. Trying to predict where EUR/USD will be in three or six months is a too complex exercise. Ultimately, the U.S. Federal Reserve (Fed) did not surprise the market, unlike the Reserve Bank of Australia recently. As expected, the central bank did not raise its benchmark rate in June, keeping it between 5.00-5.25%. However, it significantly revised its economic projections upwards. Core inflation (which is the right measure to gauge inflationary pressures) is expected to decline less quickly than expected, unemployment should continue to fall in the second half of the year, and most importantly, growth should remain at a good pace. The Fed forecasts a GDP increase of 1% in 2023. After a 1.3% growth in the first quarter and probably 2% this quarter, this means that activity should be sluggish but positive in the second half. The specter of a recession has vanished (although the foreign exchange market is clearly not convinced by this). Given the relative strength of the U.S. economy, the Fed considers that further rate hikes are necessary, at least two this year, which would bring the main rate to between 5.50% and 5.75%. Again, the market is not completely convinced. Many analysts predict that the U.S. economy will fall into recession in the second half, which validates the hypothesis of rate cuts. From our perspective, entering a recession is not a certainty (it should also be kept in mind that U.S. authorities have numerous criteria to define a recession, while on this side of the Atlantic it is enough for there to be two consecutive quarters of GDP contraction for a recession to be recognized). Consequently, we doubt that rate cuts are really a plausible scenario in the short term. However, one can legitimately debate the Fed's actual leeway to raise rates twice more and the duration of the monetary policy pause. As the Fed is data-dependent, like other major central banks, it is very difficult to have visibility on the evolution of monetary policy beyond two to three months. From the FX perspective, this means we are now in a more uncertain market environment. Evidence: the announced rate hikes by the Fed should legitimately support the U.S. dollar. But that is not the case. Major investment banks continue to believe that the U.S. dollar will enter a lasting bearish cycle after the summer. Someone is wrong. Such a level of uncertainty is quite rare. Instead of guessing where the market is going in three or six months, what absolutely must be done is to mainly minimize risk-taking and implement a good hedging strategy when faced with foreign exchange issues (this applies to both companies and individuals). Fortunately, the level of uncertainty is not as high regarding the monetary policy trajectory in the eurozone. The European Central Bank (ECB) reacted as expected. It increased the cost of money in the Union by 25 basis points (this was already priced into FX). More rate hikes are coming, particularly to curb inflationary pressures linked to a labor market marked by a significant imbalance between supply and demand. Even in France, a country where structural unemployment is traditionally high, the labor market is on a very positive trajectory. Not to mention Southern Europe. It's almost an economic miracle happening, particularly in Portugal and Greece (even if in this case, they are starting from a very low point). The black sheep is Germany. This is unusual. It's largely linked to its high exposure to the Chinese economy and global trade (which has been sending negative signals since the beginning of the year). Over the past week, China has announced several measures to lower the cost of money and increase liquidity in the economic system. It's positive. But it’s insufficient. As long as Beijing does not implement direct support measures for the real estate sector (which is one of the traditional drivers of the Chinese economy), there will be no sustainable recovery. This means that global growth should, in any case, be rather sluggish in the second half. This is again negative for Germany. Technical point In the foreign exchange market, the euro reacted rather positively after the ECB meeting (a 1.64% increase in the EUR/USD pair over the past week, for example). But it is not unlikely that we will see profit-taking in the coming days. From our perspective, the ECB meeting did not change the game on the EUR/CHF pair. We are still positioned to buy the Swiss franc. Several factors should favor a decline in EUR/CHF: CHF serving as a safe haven in the face of the eurozone entering a recession (even if it's a mild one), the Swiss current account balance supporting the CHF, and a rather reasonable valuation when thinking in terms of real effective exchange rates. The Swiss National Bank (SNB) meeting this week should not change the situation. We also remain positioned to buy GBP due to the adjustment in the rate hike process in the UK (we will discuss this in a few lines). It is likely that EUR/GBP will reconnect with the 0.84-0.8440 area in the medium term. The supports and resistances displayed below indicate the lowest and highest points within which the rates should evolve during the week.Weekly SupportsWeekly ResistancesS2S1R1R2EUR/USD1.06901.08301.10901.1120EUR/GBP0.84400.84900.87800.8891EUR/CHF0.95490.96900.98901.0045EUR/CAD1.41901.43401.46901.4730EUR/JPY146.40149.01156.90157.80 Announcements to follow It’s another week dedicated to central banks (though the summer break is approaching). No big surprises are expected. Given the latest employment figures (which confirm that wage pressures remain significant) and the consequences of Brexit (negative price effect on imports, labor market imbalances in the service sector, especially for low-cost jobs), the Bank of England has no choice but to increase its policy rate by 25 basis points this week. This is already expected by all traders. Other hikes will certainly be confirmed in the future. Finally, the SNB should also tighten its monetary policy (a 25 basis points increase), as indicated by the central bank governor last week. The meeting scheduled for Thursday should not cause much volatility on the EUR/CHF. Below you will find the publications and events that should have a major impact on currency rate developments.DayTimeCountryIndicatorWhat to Expect?21/06/202308:00UKConsumer Price Index (May)Previous at 8.7% year-on-year change.22/06/202309:30SUICentral Bank MeetingIncrease of 25 basis points.22/06/202313:00UKCentral Bank MeetingIncrease of 25 basis points.