Differential 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 in no way serve as a basis or be considered as an incentive to engage in any investment. The macro point We are entering the quiet period. The Fed and the ECB are scheduled to meet at the end of the month. However, no actions are expected at that time. The next rate cut will occur in September. The only major focus this week is the third plenum of the Chinese Communist Party, which could lead to significant support measures. Three factors are supporting the economic recovery in developed countries: - The end of the global manufacturing sector recession. - Growth in real wages exceeding inflation. - The end of the negative impact on credit from restrictive monetary policies. We are even beginning to see beneficial effects from the rate cuts in the interbank market within the eurozone, which is impacting rates for businesses and households. There are, of course, uncertainties, but they should not be exaggerated: - The accumulation of private debt that needs to be refinanced at higher rates, which can pose problems here and there, especially for small and medium-sized enterprises. - Persistent difficulties in the real estate sector that have yet to be addressed (the 'pretend and extend' strategy). - Reduced corporate margins due to rising shipping costs, raw materials, and wages — topics we have discussed in our recent newsletters. The good news is that unless there are setbacks, things should be fine, and the recovery is expected to strengthen in the coming months! Obviously, the growth differential observed since 2000 between the United States and the eurozone will persist. In Europe, potential growth (at full utilization of production factors) is close to 0.8%, whereas across the Atlantic, it ranges between 1.5% and 2% depending on estimates. How to increase it? By boosting productivity. Until recently, it was thought impossible. The United States has proven otherwise. By investing heavily in energy transition and industrial reshoring, Washington has achieved significant productivity gains that have subsequently led to wage increases. Unfortunately, in Europe, particularly in France, there is a desire to increase wages before productivity is achieved. This is theoretically possible, but it requires budgetary leeway, which is not the case. As a result, unless there is a radical change, the European economy is likely to underperform the United States' economy sustainably. This is important because it partly explains the rise of the U.S. dollar, which is overvalued by about 10% compared to major currencies. A strong dollar is synonymous with a healthy U.S. economy! Technical point Even the prospect of the US presidential election should not fundamentally change the situation on the forex market. We still project that the US dollar will show one of the strongest performances on the FX this year. One should expect increased volatility approaching the election on November 5. How will other currencies react? Hard to say. However, the FX evolution during the 2016 presidential election can serve as a framework for reflection. The Trump wave was deemed positive for growth, pushing up oil prices and the dollar. The Russian ruble also performed well. Conversely, Trump's protectionist measures, which are still on the agenda, particularly weakened the Mexican peso. It's uncertain if we will see the same movements in the forex market this time. Many things can happen by November, such as the replacement of the Democratic candidate. What is certain, however, is that the US dollar should do well once again. A strong dollar remains the norm.The supports and resistances shown below indicate respectively the low and high points within which prices should move during the week.Weekly SupportsWeekly ResistancesS2S1R1R2EUR/USD1.06001.07031.09121.0990EUR/GBP 0.83220.83840.85090.8588EUR/CHF 0.95330.95900.97900.9814EUR/CAD 1.44981.46091.48221.4887EUR/JPY 168.88170.11173.99174.56 Announcements to follow The upcoming week will be busy. It starts with the third plenum of the Chinese Communist Party starting today. It's an opportunity to set economic and financial priorities for the next five years. Support measures for renewable energies will likely be announced. This would be positive for industrial metals, particularly copper, and possibly slightly for the Australian dollar. Let's not forget that in October, the country celebrates the 75th anniversary of the proclamation of the People's Republic of China. Good statistics are needed to glorify the Chinese model.In Europe, the European Central Bank (ECB) is meeting. No surprises expected. It's a transition meeting before the new rate cut in September (-25 basis points). The minutes of the last meeting highlighted dissent among Governing Council members about the strategy to follow in the coming months. However, given the latest inflation figures and wage developments in the eurozone, it's clear that the ECB has enough leeway to further ease monetary policy. Furthermore, it won't be the only one doing so as the US Federal Reserve (Fed) is also expected to lower interest rates at the start of the fall. Even though inflationary pressures persist here and there in the US, the Fed doesn't really have any other choice but to act before the US presidential election – which is potentially risky if the election is contested.Below are the publications and events that should have a major impact on currency movements.DayTimeCountryIndicatorWhat to expect?18/07/202414:15EURCentral bank meetingNo change in monetary policy for now.18/07/202414:30USAPhiladelphia Fed Manufacturing Index (July)Previous at 1.3.