Asian Turmoil

In the foreign exchange market, the euro remains under pressure. Besides the monetary policy differential, the underperformance of the European economy and the French political risk, we believe that the financial attractiveness differential between Europe and the United States will be a powerful driver of euro depreciation in the short and medium term. The French stock market is lagging (negative since the start of the year), while the American stock market is reaching new highs. Consequence: there is a withdrawal from French and more broadly European assets by savers and institutional investors in favor of American asset purchases. All this generates massive flows across the Atlantic, which structurally support the dollar. Conversely, it is an element of weakness for the euro.

The macro point

It went completely unnoticed. And yet, it is of crucial importance. The Chinese yuan continues to depreciate against the dollar (but remains relatively stable against the euro). This is a signal of significant tensions between the USA and China. To watch before Trump's rise to power! Obviously, the French political news affected the financial markets – but not that much. The euro did not collapse. The CAC 40 stock index in Paris experienced sessions in the green. Even better, the CAC Small, which is the stock index for small and medium-sized enterprises, showed some resilience. It is, however, the stock index that is receptive to the political and economic climate in France. In reality, attention should have been focused on Asia last week. The South Korean won made an unexpected dive against the US dollar, hitting a two-year low after martial law was temporarily enacted. More importantly, the Chinese yuan continues its slow depreciation against the dollar (-5% in two months). This is a sign that the trade war between the United States and China will also involve the foreign exchange market. Moreover, China triggered another grenade last week. Beijing banned the export of gallium, germanium, and antimony when these metals, essential for energy transition, are used for military purposes in the United States. This is bad news for the Americans. In the case of germanium, for example, they are forced to import 50% of their needs. Germanium is an industrial metal that is indispensable in electronics, fiber optic systems, solar energy installations, or even infrared vision, which has dual applications, both civilian and military. Expect the coming months to be eventful between China and the United States.

Technical point

Although we think that parity is a difficult target to achieve for EUR/USD in the immediate term, we consider the downtrend to be still intact, with an initial target of 1.0350 which could be reached by the first quarter of next year.

Against other major currencies, the euro should also be weak—particularly against the British pound. The downward movement is well underway for the EUR/GBP pair.

The supports and resistances shown below respectively indicate the lows and highs within which prices should evolve during the week.

	Weekly Supports		Weekly Resistances
	S2	S1	R1	R2
EUR/USD	1.0350	1.0390	1.0722	1.0745
EUR/GBP	0.8200	0.8210	0.8323	0.8329
EUR/CHF	0.9212	0.9245	0.9345	0.9388
EUR/CAD	1.4688	1.4702	1.4823	1.4845
EUR/JPY	157.01	157.80	159.90	160.34

Announcements to follow

This week, central banks will be at the forefront. The European Central Bank (ECB), the Swiss National Bank (SNB), and the Bank of Canada (BoC) are each expected to cut their key interest rate by 25 basis points this week. Be aware, the SNB could also discuss the possibility of direct intervention on exchange rates to limit the appreciation of the Swiss franc. The Swiss currency has increased by 4.7% against the euro over six months amid European economic downturn and increased political risk in France.

In Asia, the Central Economic Work Conference is expected to take place in the coming days—the final date has not been set. It is a crucial meeting as it is when the Chinese government sets the economic priorities for the coming year. Afterward, only the main areas of intervention will be revealed, likely with particular attention to real estate and the export industry. It will be necessary to wait for the annual parliamentary session in March 2025 to have precise data on growth targets and investment amounts to be allocated. Patience. We doubt, in any case, that China will announce a large fiscal stimulus plan. For now, the monetary lever has been mainly activated, with a limited positive effect on economic dynamics.

Below are the publications and events that should have a major impact on the evolution of currency prices.

Day	Time	Country	Indicator	What to expect?
11/12/2024	14:30	USA	Consumer Prices (November)	Previous at 2.6% year-on-year.
11/12/2024	15:45	CAN	Central Bank Meeting	Rate cut by 25 basis points to 3.50%.
12/12/2024	09:30	CH	Central Bank Meeting	Rate cut by 25 basis points and high risk of intervention on the exchange market to curb the rise of CHF.
12/12/2024	14:15	EUR	Central Bank Meeting	Rate cut by 25 basis points.

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 be the basis or be taken as an incentive to engage in any investment.