Ever Higher The information presented in this publication is provided purely for informational purposes and does not constitute investment advice, an offer to sell, or a solicitation to buy, and should not be used as a basis or considered as an incentive to engage in any investment. The macro point Inflation is accelerating. Central banks have no choice but to send very clear signals to the foreign exchange market about their willingness to combat inflationary pressures. Across the Channel, the Consumer Price Index (CPI) exceeded expectations in March, rising 7% year-on-year. Analysts now expect British inflation to peak around 10% this year. Across the Atlantic, the CPI reached a stratospheric level of 8.5% over the same period. Excluding the most volatile items (such as energy prices), inflation remains painfully high at 6.5%. Producer prices (which have a direct impact on business margins) also rose sharply to 11.2% year-on-year (again, this is more than the consensus which expected 10.6%). Throughout developed and emerging countries, inflation is now out of control. For months, businesses have tried to cut into their margins but this is no longer possible. Price increases are being passed on to consumers. In recent weeks, several countries have warned that consumption has certainly slowed sharply in the first quarter, well before the war in Ukraine broke out (we believe it is very simplistic to consider the war as the cause of all current woes of the global economy). In the face of soaring prices, central banks can only opt for one strategy: tightening monetary policy. As expected, the Bank of Canada (BoC) raised its main policy rate to 1% from 0.50%. This is the largest increase in twenty years. More will follow very quickly. Foreign exchange traders expect the Canadian policy rate could climb to at least 3% during the current economic cycle (this implies at least 10 rate hikes of 25 basis points in the coming quarters). Moreover, the BoC plans to start reducing its balance sheet as of April 25 by not replacing maturing bonds (this is akin to a form of monetary tightening). The EUR/CAD reacted little to this announcement. Everything had already been priced in the market for several weeks. In the eurozone, the European Central Bank (ECB) remains more cautious on the path forward. "The war in Ukraine is severely affecting the eurozone economy and has significantly increased uncertainty," noted Christine Lagarde last Thursday. The ECB is particularly vague about the rate hikes, which seems to indicate disagreements between the hawks and doves within the Governing Council. However, rising inflation is likely to force it to act sooner or later (the CPI is nearing 8% year-on-year in March). Many analysts anticipate that the upcoming June meeting will provide a clearer timetable for rate hikes. Therefore, we will have to wait. The EUR/USD continued its decline following the meeting, trading below 1.08. Finally, rising inflation puts pressure on small emerging countries. Large emerging economies are currently resilient, notably thanks to the credibility of their central banks which raised policy rates very early. However, it is no trivial matter, we had the first sovereign default since the pandemic last week. Sri Lanka (a small island in the Indian Ocean near India) defaulted on part of its debt denominated in U.S. dollars. The Sri Lankan government's goal is to use its dollars to continue importing essential goods rather than paying the country's debt holders. It is likely that other countries will face this difficult choice in the short term. The weak links are mainly in Africa and South Asia. There will be other sovereign defaults. That's certain. But for the moment this does not cause turmoil in the foreign exchange market, at least not for the major currencies. The EUR/USD pair has been retreating in recent sessions. It's hard not to see the euro dropping further against the U.S. dollar. Technical analysis indicates that the next support level to watch is around 1.0730 (the low point of April 24, 2020). If it breaks, a decline towards 1.0650 can reasonably be expected. Given the information we possess at this time, we see absolutely nothing preventing this bearish scenario from occurring. We also maintain a bearish view for the euro against the Canadian dollar (which is aided by the BoC's monetary tightening) and against the British pound (which shows very good resilience). The supports and resistances displayed below indicate respectively the low and high points within which the rates are expected to evolve during the week.SUPPORTSWEEKLYRESISTANCESWEEKLYS2S1R1R2EUR/USD1.04801.06501.10841.1183EUR/GBP0.80200.81680.83480.8429EUR/CHF0.99301.00101.02831.0421EUR/CAD1.32211.34321.38591.4080EUR/JPY132.23134.48137.41138.80It is another transitional week for the forex market. There will be few major economic indicators (see table below). As we expected, the war in Ukraine is no longer a topic for forex traders. Unless there is a surprise, we should therefore see a drop in volatility on the main pairs in the coming sessions and the maintenance of the trends of recent weeks. Happy Easter Monday to all. Below you will find the publications and events that should have a major impact on the evolution of currency rates.DAYTIMECOUNTRYINDICATORWHAT TO EXPECT?04/2016:00Existing Home Sales (March)Drop to 5.80M from 6.02M in February.04/2111:00Consumer Price Index (March)Last estimate for March expected at 7.5% year-on-year (no change from previous estimate)14:30Philadelphia Fed Manufacturing Index (April)Analyst consensus at 20.9 against 27.4 in March.04/2209:30Manufacturing PMI (April)Consensus at 55.8 against 56.9 in March. It's still a very positive figure.