Cold Shower The information presented in this publication is provided purely for informational purposes and does not constitute investment advice, a sales offer, or a solicitation to purchase, and should not be used as a basis or considered as an encouragement to engage in any investment. The macro point Cold ShowerThe Macro PointOnce again, economists and analysts have shown their complete inability to reliably forecast the economic evolution in this reopening phase. We can't blame them, the exercise is complex. Last week, the shock came from the U.S. inflation figure in June. Everyone expected inflation to remain high – but not that high. The consumer price index peaked at 5.4% last month year-on-year – the highest increase over such a period since August 2008. Excluding the most volatile goods and products, the so-called core inflation reached 4.5% compared to June 2020. Again, this is an increase that hadn't been seen for decades, specifically since November 1991! This strong increase toppled several financial markets. In the foreign exchange market, immediately after the announcement, the EUR/USD broke below the 1.18 threshold. Strong inflation strengthens expectations regarding tapering in the United States, which in theory supports the U.S. dollar against other currencies. This explains the movement observed in the EUR/USD in the middle of last week. It is undeniably too early to know how the U.S. Federal Reserve will interpret these figures. If we look in detail, the rise in inflation is mainly due to a minority of categories (primarily used vehicles, hotel rooms, and air tickets). In the end, six categories accounted for nearly 55% of the rise in inflation in June. Unsurprisingly, all these categories, without exception, are directly affected by the post-Covid reopening in effect since last April. A priori, these inflationary tensions are not expected to last, which corroborates the official scenario of the U.S. central bank that high inflation is transitory. Caution is warranted, however, as in the data released last week for June, if we examine everything in detail, we notice that there are areas where there will certainly be continued inflationary pressure. It remains to be seen if there is a real risk that this will derail the Federal Reserve's inflation forecasts. At the very least, it seems obvious that price tensions will further fuel discussions among monetary policy committee members at the meeting scheduled for July 27 and 28. However, the central bank has every interest in not rushing and waiting to have more data to make the most reliable diagnosis possible concerning the economic and price trajectory. In other words, it's certainly not before Jackson Hole (end of August) or more likely the meeting on September 21 and 22 that the central bank will adjust its forward guidance taking into account the latest developments in the field of inflation. As we have known for several years, there is never a quiet summer on the foreign exchange market. The inflation theme will remain at the heart of concerns for currency traders in the weeks and months to come. It will therefore be necessary to be particularly vigilant regarding publications on price developments across the Atlantic that are on the economic agenda. The next deadline to keep in mind will be August 11 with the first estimate of the consumer price index for July. In the eurozone, inflation is clearly a much less significant issue. Moreover, the European Central Bank was sufficiently explicit less than ten days ago that, for the moment, monetary policy remains unchanged in broad terms – that is, still ultra-accommodative. Technical point In the short term, we observe that the trends seen in recent weeks in the currency market remain unchanged. The EUR/USD pair is still in a long-term downward channel, which logically should lead it to touch 1.17 and then 1.16. On the EUR/CHF side, the pair has almost stagnated on a weekly variation. The SNB president reaffirmed a few days ago that the central bank will continue to use unconventional measures in the future (direct interventions in exchanges and negative rates) – nothing surprising. Finally, the Bank of Canada's meeting was not a supportive element for the CAD, contrary to what might have been expected. The central bank has again reduced its asset purchase program (from three to two billion CAD per week), before a further action in this direction expected by the market in the fall.The supports and resistances displayed below indicate the lower and upper points within which the courses should evolve during the week.SUPPORTSWEEKLYRESISTANCESWEEKLYS2S1R1R2EUR/USD1.16241.17281.19311.1965EUR/GBP0.84000.84790.86480.8711EUR/CHF1.07491.08021.09301.1005EUR/CAD1.44521.46161.49301.5080EUR/JPY126.00126.21130.78131.93For personalized advice on trends and currency hedging, contact our trading room: Announcements to follow The main point of attention this week will be the European Central Bank meeting, which will be a non-event. No adjustment in interest rates or asset purchase programs (called QE) is on the agenda. An adjustment will not be unveiled by Christine Lagarde before September or rather end of the year. Also, we will have confirmation this week of the good momentum in the manufacturing and services sectors in the eurozone with the publication of the latest PMI estimate for July. There will be no surprise. The European economy remains firmly in an expansion phase, notwithstanding uncertainties regarding the delta variant.Below you will find the publications and events expected to have a major impact on the evolution of currency rates.DAYTIMECOUNTRYINDICATORWHAT TO EXPECT?20/0708:00Producer Price Index (June)Drop to 0.7% month-on-month against 1.5% previously.22/0713:45Central Bank MeetingNo surprise, status quo on rates and asset purchase programs.23/0709:15Manufacturing and Services PMI (July)Manufacturing PMI: stable at 59.0PMI services: rise to 59.4 vs 57.8 previously.15:45Markit Manufacturing and Services PMI (July)Manufacturing PMI: drop to 61.5 vs 62.1PMI services: sharp rise to 70.0 vs 64.6 previously.Did you like this content? Share it!