A Complicated Story The information presented in this publication is communicated to you purely for informational purposes and does not constitute investment advice, an offer to sell, or a solicitation to buy, and should not under any circumstances serve as a basis or be considered as an incentive to engage in any investment. The macro point The signals sent by the American economy are quite puzzling at the moment. The American consumer is healthy despite the soaring inflation at levels not seen for more than forty years. Retail sales rebounded sharply in January, after a disappointing December. On a monthly basis, the increase is 3.8%. The last time such a level was reached was when the Trump administration sent checks of several thousand dollars to Americans during the pandemic. However, we remain convinced that at some stage consumption will falter. Inflation is persistent. It will particularly penalize the least well-off households.The January producer price index in the United States revealed that inflationary pressures are accelerating and now affect all sectors of activity. None are spared. In just one month, the average increase in services reached 0.7% and in intermediate goods 1.3%. The increase is particularly worrying at the level of energy (+2.5%) and food (+1.6%). In these circumstances, household purchasing power is expected to decline in the coming months. This will happen at the worst time for the Biden administration, which must face the mid-term elections this fall.The level of inflation reinforces expectations of monetary tightening by the American Federal Reserve (Fed). The minutes of the last central bank meeting highlighted that several participants fear a loss of inflation expectations anchoring. If this were to happen, the task would become much more complex for the Fed. It will have to act very aggressively to convince market operators and consumers that it can reduce inflation. At the time of writing, traders expect six rate hikes of 25 basis points each by the end of the year. This would bring the Fed's discount rate just above 1.60% in December. These expectations are very volatile. Just a few days ago, the consensus was for seven rate hikes. The message is clear in any case: the era of low rates is over.In the eurozone, inflation is still an issue but the geopolitical risk is currently capturing everyone's mind. The tensions between Ukraine and Russia have led to a very strong resurgence of volatility and risk aversion in financial markets (stocks in particular). In contrast, the impact is so far limited on the foreign exchange market. The EUR/USD remains in a 140-point range over the last sessions. The Swiss franc, which is usually a favored asset in times of geopolitical risk, gained very little ground against the euro last week. Traders do not seem to believe in a significant deterioration of the situation (e.g., an open conflict).Finally, the process of monetary tightening continues in emerging markets. The central bank of Russia has raised its key rate for the eighth consecutive time, to 9.50%. This is just the beginning. More rate hikes are coming. Russia is one of the countries that has adopted the most aggressive approach to combat inflationary pressures. The only country that seems determined to go its own way is Turkey. Last week, the central bank, which is effectively controlled by the government, kept its key rate unchanged at 14%. It's high but still too low to have a real effect on the inflation dynamic. The consumer price index reached 50% over one year last January. We can talk about hyperinflation at this stage.On the foreign exchange market, major levels of recent weeks remain. Volatility is contained for now. For some pairs, technical levels are almost unchanged (for example, EURGBP). In the short term, we believe that the EUR/USD should continue to move in a large range, between 1.13 and 1.15, as has been the case since the beginning of the month. Volatility will really return with the meetings of central banks in March, which will provide a clearer direction regarding monetary policy this year.The supports and resistances listed below indicate the respective low and high points within which the prices should move during the week.SUPPORTSWEEKLYRESISTANCES WEEKLY S2S1R1R2EUR/USD1.11171.12331.15801.1668EUR/GBP0.82240.82820.84290.8498EUR/CHF1.02581.03721.05331.0597EUR/CAD1.41731.43031.45611.4691EUR/JPY127.01129.08131.86132.81Besides the geopolitical risk that will need to be closely monitored this week, traders will focus on the first estimate of the manufacturing PMI for the eurozone in February (today) and on the business climate in Germany in February (Tuesday). These are not market movers, meaning events likely to provoke a resurgence of volatility in currencies. However, they will provide a better overview of the European economy and especially the German economy, which showed signs of weakness at the end of 2021.Below are the publications and events that should have a major impact on currency movements.DAYTIMECOUNTRYINDICATORWHAT TO EXPECT?21/0209:30First estimate of the manufacturing PMI (February)Expected decrease to 57.0 from 59.8 in January.22/0210:00IFO Business Climate Index (February)Consensus at 94.7 against 95.7 in January.16:00Conference Board Consumer Confidence (February)Expected drop to 110.3 from 113.8 in January.24/0214:30New GDP estimate for the fourth quarter of 2021The consensus calls for an increase to 7.0% in a quarterly variation.