Finally Some Clarity! The information presented in this publication is provided solely for informational purposes 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 There were a lot of comments last week about the impact of the dissolution on financial markets. Comments often incorrect. In the case of the foreign exchange market, it is indeed the Fed's monetary policy that remains the main marker. The French political saga can create disruptions, as during Friday's session. But we should not exaggerate the long-term impact. We heard a lot about the impact of the dissolution on financial markets last week. On the foreign exchange market, the effect was weak. The EUR/USD fell by 0.25% following President Macron's announcement. It's little and largely due to weak liquidity over the weekend. Subsequently, the euro did not really reflect the continuation of events (rumors of the president's resignation in case of RN victory, strong push from the left led by LFI, etc...), except during Friday's session when Minister Bruno Le Maire quite irresponsibly raised the specter of a financial crisis. How can we explain the euro's relative resilience? The ECB serves as a barrier to speculation, once again. Following the dissolution of April 1997, the franc collapsed against the German mark. It took three weeks for the national currency to stabilize, due to direct FX interventions by the Banque de France. The real winner of this episode was the dollar, which emerged even stronger. Fortunately for us, we are not in 1997. The reality is that the French political soap opera is not the most important marker for the euro, even if from time to time, it can create surges of volatility. U.S. inflation and the U.S. Federal Reserve are much more important drivers of currency movements. One figure: the increase in food prices in grocery stores across the Atlantic was only 1% in May, its lowest level since 2021. This is excellent news. More generally, inflation in services is declining – this is an important point of vigilance for the Fed. And, in all likelihood, energy prices should continue to fall in the second half of the year. This is positive for the Fed. Incidentally, it will also be a good thing for the new French government. Even though it is still too early to know precisely the overall inflation dynamics in the coming months, the Fed has taken note of the good figures by mentioning in its statement "modest" improvements in terms of price trends. It now anticipates a rate cut this year (against a market consensus of seven rate cuts at the beginning of the year!). It's little. But it doesn't matter. The foreign exchange market needed visibility on the future of U.S. monetary policy. It's done. The exact timing of the rate cut will depend on the next inflation figures and the U.S. presidential election. We still think a cut in the fourth quarter is possible, provided the presidential election is not contested. This is a risk to consider. It should be noted that the prospect of a Fed rate cut has led to a decrease in tensions on the bond market on both sides of the Atlantic, and particularly in France. It's not just about the legislative elections! For financial market players, it's always U.S. monetary policy that takes precedence (and so much the better!). Last week, we told you about weak signals that will have to be taken into account this summer, when trading volumes are low. The one that concerns us the most relates to the surge in maritime freight transport. Geopolitical tensions in the South China Sea, where 40% of the EU's external trade transits, explain the increase. In one year, the freight rate has jumped 181%. We are not at the levels reached during Covid, fortunately. But it is starting to become complicated and could lead to an increase in input prices for companies which, if it is sustainable, will certainly be passed on to consumers. To monitor closely in the coming weeks. Technical point On the forex market, the strong dollar still remains the norm. During the session on June 12, the dollar index reached its highest level in a month. We do not expect a trend reversal on the American currency. For the EUR/USD, this means that the probability is higher that it reconnects with 1.05 rather than 1.10-1.12 in the weeks and months to come. Moreover, data published by Japan shows that Beijing recently sold nearly $17 billion of foreign debt (mainly U.S. Treasury bonds). It's the first time in nine years that such a level has been reached. It can be suspected that this funded direct interventions on the forex market to support the Japanese yen, as was the case at the beginning of May. However, these interventions have always failed. The yen is down 0.80% against the euro in a month. The best that Japanese authorities can hope for is to stabilize the JPY in a wide fluctuation range against the dollar and the euro. The supports and resistances displayed below indicate the low and high points within which prices should move during the week.Weekly SupportsWeekly ResistancesS2S1R1R2EUR/USD1.05001.06231.09331.1001EUR/GBP0.83110.83450.86340.8655EUR/CHF0.94000.94090.97340.9799EUR/CAD1.46091.46331.49111.4934EUR/JPY167.93168.03171.05171.55 Announcements to follow This week will again be dedicated to central banks and inflation, unsurprisingly. We do not expect a change in monetary policy in Switzerland. However, a 25 basis point cut in the key interest rate in September seems to be a credible scenario. It's more complicated for the United Kingdom. The money market is divided on the outcome of Thursday's meeting. It's a 50/50 chance. A possible 25 basis point rate cut will depend on the Consumer Price Index for May (published Wednesday). A further decline could provide the necessary leeway for the Bank of England (BoE) to start the rate cut cycle. Otherwise, it will be in August. Now it's only a matter of time. We doubt that the uncertainty about the BoE meeting will cause much volatility on the EUR/GBP, which has been range-bound for quarters, no matter what happens. Below are the publications and events that should have a major impact on currency trends.DayTimeCountryIndicatorWhat to expect?18/06/202411:00EURConsumer prices in MayConsensus at 2.6% year-on-year against 2.4% the previous month.19/06/202408:00UKConsumer prices in MayPrevious at 2.3% year-on-year.20/06/202409:30CHCentral bank meetingNo change in monetary policy. A rate cut is however likely in September.20/06/202413:00UKCentral bank meetingEverything will depend on consumer prices in May.