Decoupling 2 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 be considered as an inducement to engage in any investment. The macro point If you took the Ascension bridge holiday, you didn't miss much in the foreign exchange market. Volumes were low, which is normal for this period. However, we have bad news to share: the Bank of Japan's interventions to reverse the downward trend of the yen are far from successful. A weak yen is likely to be the norm for the rest of the year. May is traditionally quiet on financial markets. The past week was no exception to the rule. There were hardly any significant statistics. The only central bank meeting worth mentioning was that of the Reserve Bank of Australia. Unsurprisingly, monetary status quo prevailed. The statement released after the meeting gave mixed signals, leaving the door open for both a rate cut and a rate hike. Australia is one of the few developed economies that has a real issue with domestic inflation, like the United States. In the United States, there was only one significant statistic: the New York Fed's survey called the Survey of Consumer Expectations conducted in February. It confirmed that no relief is expected in housing prices and rents by the Americans surveyed. This is bad news since the real estate sector is one area where inflation is problematic. From our point of view, regarding the inflation dynamics, a rate cut across the Atlantic cannot occur in June. Even if upcoming indicators indicate an easing of inflation—which is not at all certain—the FOMC will not have enough perspective to determine if the observed decrease is cyclical or structural. Kashkari, a FOMC member, summarized the situation perfectly during a speech last Tuesday: 'The most likely scenario is that we keep rates in place for an extended period. A rate increase is not the most likely, but we cannot rule it out. The employment report on Friday is weaker than expected but not weak. We will need several inflation releases to be confident in a rate cut. If we do not achieve 2% inflation, it will impact our credibility.' The message is clear: high rates are needed over time. From the foreign exchange market perspective, this means there will be an increasing rate decoupling between the two sides of the Atlantic starting in June. This scenario is already partly priced into the market rates. In absolute terms, maintaining high rates in the United States is a structural support factor for the dollar. Global capital flows seeking high and relatively safe yields will likely go to the United States rather than elsewhere. This explains, incidentally, the very good performance of US stock indices since the beginning of the year. For EUR/USD, the decoupling should result in a more pronounced decline of the euro. We are targeting 1.05, which seems to us to be a level in line with the fundamentals of the eurozone as well. Even if growth is far from being sustained on the Old Continent, signals are accumulating in favor of a slow recovery. This will, however, not allow catching up Europe's decline compared to the United States. A scary statistic: France's GDP is now between that of Texas and California. This shows how significant the European lag is, and it has worsened since the 2000s… Technical point In the foreign exchange market, movements were limited in a context of low volumes—which is normal at this time of year. There is, however, bad news. The Bank of Japan (BoJ) certainly failed to reverse the downward trend on the yen. The last two interventions by Tokyo in the foreign exchange market have had only very short-term positive effects. This was predictable. For Japan to succeed, at a minimum, the U.S. Treasury needs to intervene at the same time. This is not currently on the agenda. U.S. Treasury Secretary Yellen publicly expressed her surprise regarding the erratic movements of the Japanese yen. This means, in diplomatic language, that Washington does not appreciate the BoJ's interventions in the FX. Even if the United States decided to intervene in a coordinated manner, success is not guaranteed. It is known that interventions in the foreign exchange market are successful when there is also a monetary policy aligned with the intervention's objectives. Comparatively, the BoJ still maintains an ultra-accommodative monetary policy that is inconsistent with a strong currency. We continue to think that a weak yen is here to stay.The supports and resistances displayed below indicate the low and high points between which the prices are expected to move during the week.Weekly SupportsWeekly ResistancesS2S1R1R2EUR/USD1.05981.06101.08541.0912EUR/GBP0.83880.84120.86450.8699EUR/CHF0.95550.96120.98220.9889EUR/CAD1.44551.45901.48091.4855EUR/JPY163.55164.11168.01169.11 Announcements to follow Another quiet week awaits us, certainly with low volumes and pairs mostly moving in range-bound situations. The inflation in the United States for April will be published. Consumer prices in March had strongly surprised the market on the upside. A drop in inflation is now necessary to consider a rate cut after the summer. But let's be objective, regardless of the figure that will be published, it will not change the direction of U.S. monetary policy in the short term. It is in auto-pilot mode at least until the start of September.Below you will find the publications and events that should have a major impact on currency price movements.DayTimeCountryIndicatorWhat to Expect?On 05/14/202414:30USAProducer Prices (April)Previous at 0.2% month-over-month.On 05/15/202414:30USAConsumer Prices (April)Previous at 3.5% year-over-year.