End of Year The information presented in this publication is provided for informational purposes only and does not constitute investment advice, an offer to sell, or a solicitation to buy, and should not, under any circumstances, serve as a basis or be considered as an incentive to engage in any investment. The macro point The currency market evolved in response to central bank meetings last week. Some tightened their monetary policy to combat inflationary pressures, while others preferred to wait. Unsurprisingly, the U.S. Federal Reserve accelerated the tapering from $30 billion per month against $15 billion previously. It should end next March. Furthermore, a majority of the Board of Governors members now expect three rate hikes next year, in line with market consensus. The central bank remains confident in the direction of the U.S. economy. It expects the unemployment rate to fall to 3.5% by the end of 2022 (compared to 5.2% currently) and annual growth to reach 4% (compared to an estimate of around 6% for 2021). This may be a bit optimistic. Last September, it anticipated growth of 3.8% without any rate hikes. It's hard to see how it could rebound to 4% with three rate hikes. Indeed, this will tighten financial conditions and reduce access to credit for households and businesses, for example. Overall, the foreign exchange market reacted well to the Federal Reserve's announcements. The main winner of the monetary tightening cycle in the United States will be the U.S. dollar. According to us, it should perform strongly against other currencies in 2022. Last week, several central banks raised their key rates: Norges Bank (+25 basis points), the Bank of England (+15 basis points), and the central bank of Chile (+125 basis points). The interest rate hike in the United Kingdom was far from certain, as we indicated in our weekly note on December 13. It seems that the central bank favored combating inflationary pressures over supporting growth amid a worsening health situation (the British press describes it as a 'tidal wave' to describe the spread of the Omicron variant). The central bank expects inflation, measured by the consumer price index, to reach 6% next year. This concretely means that further rate hikes will occur in the coming months to mitigate rising prices. We are gradually emerging from the era of easy money and ultra-low rates. Conversely, the European Central Bank and the Swiss National Bank opted for the status quo. The Swiss National Bank maintained its negative interest rate policy (-0.75%) and raised its inflation projection to 3% for 2022. It again indicated willingness to intervene in the foreign exchange market to ease pressure on the Swiss franc, which 'remains at a high level' (central bank statement). It's a risk to consider. Since the beginning of the year, the EUR/CHF has lost nearly 3.4% of its value. On the side of the European Central Bank, there is no rate hike on the horizon. The central bank confirmed it will end its pandemic asset purchase program (also called PEPP) next March. To avoid a too abrupt withdrawal from financial markets, it planned to increase its regular purchase program (APP) until the end of 2022, which will somewhat take over from the PEPP. This corresponds to the scenario expected by traders. Unlike the Federal Reserve and the Bank of England, the European Central Bank does not seem worried about inflationary pressures. That might not last long. Inflation in the eurozone reached 4.9% in November year-on-year – well above the tolerance threshold of 2%. On the foreign exchange market, the euro showed a small gain against the U.S. dollar on a weekly basis. Traders who were positioned long on the dollar before the Federal Reserve liquidated their positions afterward. This is a common phenomenon before a major central bank meeting. From our perspective, the euro still evolves in a medium-term bearish trend. Levels to consider during the holiday period are 1.1172 (main medium-term support of the pair) and 1.1447 (resistance). Attention should be paid in the coming sessions to the evolution of the EUR/CHF, which lost some ground again last week. Over three months, the decrease is 4.6%. The Swiss National Bank will eventually have to intervene in the market sooner or later. Important lesson: never position against a central bank that has near-infinite firepower. The supports and resistances displayed below indicate the respective low and high points within which prices are expected to evolve during the week.SUPPORTSWEEKLYRESISTANCESWEEKLYS2S1R1R2EUR/USD1.10451.11721.14471.1550EUR/GBP0.83160.84280.85900.8651EUR/CHF1.03021.03661.0501.0590EUR/CAD1.40651.42321.4691.4750EUR/JPY126.66127.4129.11129.93It goes without saying that there are few statistics this Christmas week. But that does not mean it will be calm on the foreign exchange market. The decrease in volumes often leads to abrupt movements on currencies, including euro pairs. It is certainly the time of year to be most vigilant and to think about adopting appropriate currency coverage if exposed to the market. We wish you a very happy holiday season and we will see you again on Monday, January 3, 2022! Below you will find the publications and events that should have a major impact on the evolution of currency rates.DAYTIMECOUNTRYINDICATORWHAT TO EXPECT?22/1208:00Third Quarter GDP PublicationPrevious at 1.3% quarterly change.14:30Third Quarter GDP PublicationNew estimate. Consensus is expecting a figure of 2.1% quarterly change.16:00Consumer Confidence from the Conference Board (December)Previous at 109.5.