Disappointment The information presented in this publication is communicated to you for informational purposes only and does not constitute investment advice, a sales offer, or a solicitation to purchase, and should in no way serve as a basis or be considered as an incentive to engage in any investment. The macro point The decline of the dollar index is the main notable event in the foreign exchange market in recent weeks. It's surprising. One might think that the resurgence of geopolitical risk would have supported the greenback more. In reality, the decline of the dollar is explained by extreme positioning of traders buying in. We are currently witnessing an unwinding of positions and profit-taking. In the medium term, the rise of the dollar should nonetheless continue. It’s a complicated period. The month of October resulted in a plunge in global stock markets. Almost all sectors were affected. This reflected an increase in risk aversion, particularly due to tensions in the Middle East. Risk aversion also affected the foreign exchange market but to a lesser extent, however. The month of November is hardly more positive. Geopolitical risk is now in the background. It is now macroeconomics that is frightening. Since the beginning of the year, market operators hope to see signs of solid recovery in China. They are constantly disappointed. This was the case again last week. Statistics on China’s trade balance are very bad. The decline in exports accelerated in October, with a drop of 6.4% year on year. Crude oil imports followed a similar trend, which explains the drop in oil prices last week and the poor performance of the Canadian dollar. Two main conclusions can be drawn: (1) China's recovery is slow to materialize in the figures, and there are more and more doubts about the country's ability to meet its 5% growth target without resorting heavily to debt; (2) Chinese exports are usually a good indicator of global economic health, and the least that can be said is that it bodes badly. The long-dreaded global slowdown is happening. Moreover, since last June, companies have all become more cautious in their growth prospects and warn of a return to a world of weak growth. Finally, the economic boom expected by many in the wake of Covid was short-lived. We are quickly returning to growth levels (and also potential growth) in line with pre-2020 levels. Unsurprisingly, when the economy shows signs of slowing down, traders are quick to anticipate monetary easing by central banks. It’s the classic reflex. The money market predicts that the first rate cuts by the US Federal Reserve, the European Central Bank (ECB), and the Bank of Canada should occur next June. It will be a little later for the Bank of England (BoE) and the Bank of Canada, likely next September. As we have explained in the past, these market anticipations are fluctuating, depending on economic statistics and the discourse of central bankers. They nonetheless exert influence on the evolution of exchange rates in the short term. For example, if the money market anticipates that the ECB lowers its rates before the BoE, this can give an advantage to the pound sterling. This is obviously not the only factor that matters. Now that the main central banks are in pause mode (except for the Reserve Bank of Australia which has adopted an original stop-and-go strategy), these anticipations will need to be closely monitored to know when the market expects a change in monetary policy. This will lead to a resurgence of volatility in the foreign exchange market and, with certainty, to an adjustment of traders’ positions on the main currency pairs. From our point of view, the money market calendar regarding rate cuts is certainly wrong. We see a rate cut in the eurozone and the United States materializing rather in the second half of 2024 when growth will be much slower. Fortunately, not everything is negative at the macroeconomic level. The energy crisis in Europe, which was feared, will not occur. It is now a certainty. Mid-last week, the European Union (EU) confirmed that its gas stocks are at a maximum level, at 99.6%. Regardless of climatic conditions and geopolitical tensions with Russia (which continues to supply the EU with tiny quantities of gas), Europe will not be affected by an energy crisis similar to that of the year 2022-23. This is important given that several eurozone economies are lagging, particularly the German economy which is suffering from the slowdown in international trade and its strong exposure to the manufacturing sector. The absence of an energy crisis allows for hope of an economic rebound for the eurozone starting from the first quarter of next year. Technical point In the forex market, the US dollar has been in poor shape for about a month. It's paradoxical considering the resurgence of geopolitical risk, which logically should favor the greenback. In reality, the dollar’s decline is due to extreme positioning by traders on the buy side. For several weeks, we have seen a liquidation of positions and profit-taking. Our conviction remains intact concerning the dollar in the medium term: the rise should persist once this episode is over. The high level of uncertainty regarding the macroeconomic trajectory and the growth differential, which is clearly in favor of the United States, should contribute to a rise of the dollar in the coming months. We estimate that the fair value for EUR/USD is around 1.05. This means that the decline is certainly not over. Moreover, we have increasing doubts about the ability of Japanese authorities to support the Japanese yen. The currency's decline is significant while Japan sells US treasury bonds to support its currency. It has been a failure so far. We doubt the archipelago will opt for a more radical solution (massive and coordinated intervention with the United States to buy yen). Only a change in monetary policy by the Bank of Japan could change the situation. This could materialize in December. Nevertheless, nothing is certain. For now, one can only be a buyer on the EUR/JPY pair. It's a choice of reason. The supports and resistances shown below respectively indicate the low and high points within which the rates should move throughout the week. Announcements to follow This week will once again be calm on the statistical front, with mainly inflation data from the UK and the US. Since monetary policy in both cases is in pause mode, we doubt that the figures to be published will have a great influence on the trajectory of the US dollar and the British pound. It is likely that long-term trends will remain. As always, geopolitical risk is in the background. It's a point of vigilance to keep in mind in the coming weeks. Below are the publications and events that should have a major impact on currency rate developments.DayTimeCountryIndicatorWhat to expect?11/14/202314:30USAConsumer Price Index (October)Previous at 3.7% year-on-year change.11/15/202308:00UKConsumer Price Index (October)Previous at 6.7% year-on-year change.11/15/202314:30USAProducer Price Index (October)Previous at 0.5% month-on-month change.11/16/202314:30USAPhiladelphia Fed Manufacturing Index (November)Previous at -9.0.