A Real Headache The information presented in this publication is provided for informational purposes only and does not constitute investment advice, a sales offer, or a solicitation to buy, and should not, under any circumstances, serve as a basis or be considered an inducement to engage in any investment. The macro point Inflation remains the main headache for central bankers at the start of the year. It's unlikely to change in the coming months. In December, the consumer price index in the United States reached 7% year-on-year, the highest level since 1982. Excluding the most volatile elements, like energy and food, inflation remains high at 5.5%. This is a sharp increase compared to November (4.9%). The main contributors to rising prices are used cars (40% year-on-year), food purchases (6.5%), and real estate (4.1%). Contrary to what was said a few months ago, inflationary pressures are not limited to energy. They are noticeable across all spending categories. The inflation peak is certainly not behind us in the United States. Many economists predict that the consumer price index could rise to 8% in the coming months. If that happens, the Federal Reserve will likely have no choice but to raise interest rates more quickly than expected. Currently, the money market anticipates three rate hikes this year in the United States. The American bank Goldman Sachs predicts four hikes, and the ANZ bank (present in Oceania) adjusted its forecasts last week and now expects five rate hikes. In theory, the process of tightening monetary policy in the United States should be favorable to the US dollar in the long term, especially against exotic currencies. However, this is not currently the case. The dollar index, which measures the evolution of the US dollar against the currencies of major trading partners, was down in recent sessions.The chairman of the US Federal Reserve, Jerome Powell, reaffirmed that all tools are on the table to fight inflation during his confirmation hearing before the US Senate Banking Committee. He specifically mentioned the possibility of starting the balance sheet reduction phase of the central bank this year. This option was confirmed by the president of the Kansas City Federal Reserve, Esther George, shortly thereafter. A reduction in the balance sheet helps reduce the influx of new liquidity into the economy and therefore potential inflationary pressures. Several other FOMC members spoke last week. James Bullard advocated for four rate hikes this year. Meanwhile, Mary C. Daly stated she would like the first hike to occur as early as March, when the ongoing asset purchasing tapering process concludes. As we can see, the US monetary tightening schedule is not yet very precise.Like many other countries, the United States has likely entered a new inflation regime. Price increases are likely to be sustainably higher in the coming months and years than during the 2010-2020 period. Among major world economies, only four countries currently have higher inflation levels than the United States: Mexico (7.4%), Russia (8.4%), Poland (8.6%), and Brazil (10.1%). Turkey is a special case as the inflation surge is directly linked to government mismanagement of monetary policy. Conversely, only five major world economies have an inflation level below 2% (which was the norm before the pandemic). These are Japan (0.6%), Saudi Arabia (1.1%), Switzerland (1.5%), China (1.5%), and Indonesia (1.9%). France is in the group of countries with contained inflation, fortunately for us!Last week, we mentioned the possibility of a rebound of the single currency against the US dollar above 1.14. This has now happened. The pair gained nearly 0.87% in one week and is now approaching 1.15. In the short term, the upward momentum could continue, but caution is needed as resistance at 1.1530 may halt the euro's rise. In the long term, we still believe that the US Federal Reserve's monetary tightening policy should favor a drop in the EUR/USD pair.The supports and resistances displayed below indicate the respective lows and highs within which prices are expected to move during the week.SUPPORTSWEEKLYRESISTANCESWEEKLYS2S1R1R2EUR/USD1.12101.13341.15301.1609EUR/GBP0.82000.82650.84210.8496EUR/CHF1.02871.03531.05461.0620EUR/CAD1.40001.41511.43761.4457EUR/JPY128.08129.00131.28132.03Inflation will remain the theme of the week in the currency market. It will be the turn of the United Kingdom and the eurozone to publish their December figures. British inflation is expected to be high, at 5.1% year-on-year. This will strengthen expectations of another interest rate hike by the Bank of England (after the first hike in early December). In the eurozone, final inflation data should align with the first estimate, at 5% year-on-year. There will be no surprises. This means the currency market is unlikely to react much. For now, the European Central Bank refuses to consider inflationary pressures as durable. It is unlikely that the central bank's communication will change in the short term.Below are the publications and events expected to have a major impact on currency price movements.DAYTIMECOUNTRYINDICATORWHAT TO EXPECT?18/0111:00ZEW Economic Sentiment Index (January)Consensus forecasts a new drop to 25.1 from 29.9.19/0108:00Consumer Price Index (December)Consensus at 5.1% year-on-year.20/0111:00New estimate of the Consumer Price Index (December)Confirmation expected at 5.0% year-on-year.14:30Philadelphia Fed Manufacturing Index (January)Increase announced by consensus at 18.0 from 15.4 in December.