A Sense of Déjà Vu

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The macro point

Volatility in the foreign exchange market was particularly low at the end of 2021. In December, the EUR/USD fluctuation range reached only 1.3%, which is a low point since the introduction of the euro 22 years ago. The same phenomenon was observed with other EUR pairs. As an example, the EUR/JPY operated within a range of only 2%. For now, it seems that the spread of the Omicron variant is not a major concern for currency traders. However, it is certainly too early to know the exact implications on the healthcare system and the economy from the new wave of the pandemic. The number of new daily cases is skyrocketing in several countries (such as France), but the number of new hospitalizations remains contained for the moment. Several studies tend to confirm the effectiveness of vaccines. A preliminary study conducted in the United States and published on December 29 concludes that vaccinated people are well protected against severe forms of the pandemic. They produce antibodies that can neutralize pathogens, including those related to Omicron. Hospitalization and death figures will need to be closely monitored in the coming days and weeks. These are the factors that will determine the potential implementation of new, stricter measures to combat the pandemic. However, it is hard to see France moving towards a new lockdown similar to that of autumn 2020 just a few months before the presidential election in April.

On the economic front, few statistics were published during the holiday season. The sparse figures that were released concerned the United States. Overall, the American economy continues to do well. The American consumer is resilient and has spent a lot over the past few weeks, despite the variant and rising inflation. The American payment company Mastercard estimates that spending during the holiday period from November 1 to December 24 increased by 8.5% compared to last year. Some sectors benefited more than others. Jewelry sales jumped 32% while electronics sales increased by only 16%. Manufacturing activity in December continues to be well oriented. Indices for the Texas and Northeast regions showed strong growth. The increase in the cost of intermediate goods is still a problem, but this does not prevent the sector from displaying good results and a certain optimism for the coming months. The need for recruitment remains very high, which should lead to a continued decline in unemployment in the United States in the coming quarters.

At the beginning of 2022, consumers should expect that manufacturers will pass on to sale prices the rising costs related to supply chain difficulties and soaring energy bills. This message has been conveyed by several multinational companies to the public in recent weeks. IKEA is the latest to announce a price increase for certain products in the UK. The increase is sometimes around 25%. Anglo-Saxon politicians and economists are considering the introduction of price controls on certain specific products (mainly essentials) to avoid impoverishing the most vulnerable populations. Inflation and purchasing power will be central themes this year in France and beyond.
On the currency market, there has been no significant trend change. As we noted in the introduction, volatility was at its lowest for major pairs. It was, however, present in exotic currencies (such as the Russian ruble and the Turkish lira), which is usual at this time of year. The EUR/USD attempted a technical rebound late last week, in very low volumes. This is not significant as long as the pair remains below the 1.14 level. We remain bearish in the medium term on the pair with an initial target of 1.1230. The trend is also still bearish on the EUR/CHF pair, which is trading near its five-year lows. The interventions of the Swiss National Bank to limit CHF appreciation are not yet effective. They are likely to intensify in the coming weeks. Therefore, one should be very vigilant. We might be facing abrupt movements on the cross at the start of the year.

The supports and resistances displayed below respectively indicate the low and high points within which prices should evolve during the week.

	SUPPORTS	WEEKLY	RESISTANCES	WEEKLY
	S2	S1	R1	R2
EUR/USD	1.1135	1.1230	1.1400	1.1421
EUR/GBP	0.8287	0.8300	0.8437	0.848
EUR/CHF	1.0288	1.0326	1.0429	1.0481
EUR/CAD	1.4292	1.4393	1.4539	1.4598
EUR/JPY	128.21	128.94	131.37	132.58

The first week of the year begins with a series of top-tier economic indicators: eurozone inflation, US employment, and manufacturing and services sector trends on both sides of the Atlantic. However, these figures should not influence the monetary policy of major central banks. The US Federal Reserve (Fed) and the European Central Bank (ECB) are on autopilot for at least the next three months. The Fed is continuing its tapering (reduction of asset purchases) until next March. No increase in the benchmark interest rate is expected until this step is completed. On the ECB side, inflation is still officially considered "temporary." A change in stance is not expected before the March meeting of the institution, which will be an opportunity to release its new economic projections. Therefore, central banks are not expected to play a major role in the evolution of exchange rates immediately.

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We wish you and your loved ones a happy 2022!

Below you will find publications and events that are expected to have a major impact on currency trends.

DAY	TIME	INDICATOR	WHAT TO EXPECT?
01/03	09:55	Manufacturing PMI (December)	Consensus at 57.9 (in line with previous estimate).
	16:00	ISM Manufacturing (December)	Decrease to 60.5 against 61.1 previously.
01/04	10:30	Manufacturing PMI (December)	Consensus at 57.6 (in line with previous estimate).
01/05	14:15	ADP Non-Farm Employment Change (December)	Analysts expect 450,000 job creations, a sharp decline from November (534,000).
	16:00	ISM Non-Manufacturing (December)	Consensus at 67.0 against 69.1 previously.
01/07	11:00	Consumer Price Index (December)	Increase to 4.8% year-on-year (against 4.9% previously).
	14:30	Official Non-Farm Employment Change (December)	Job creations are expected to rebound to 425,000 in December. The unemployment rate is expected to decline again to 4.1%.