Increasingly Difficult The information presented in this publication is provided purely for informational purposes and does not constitute investment advice, a sales offer, or a purchase solicitation, and should in no case serve as a basis or be considered as an incentive to engage in any investment. The macro point The market environment is still dominated by the US dollar, which is supported by risk aversion and the prospect that the US Federal Reserve will maintain its high interest rates over time. In the coming sessions and weeks, what will really matter is the perception of risk, which is partly linked to the rise in bond yields and the trajectory of equity markets. If bond yields continue to rise, it is likely that the dollar will continue to gain. Bad news is piling up for the euro. The eurozone managed to avoid recession last year despite the energy crisis. It is unclear if it can achieve this feat again in the context of rising interest costs. Germany is in recession. This is the result of the economic slowdown in China and the end of the German model which relied for several decades on particularly low Russian energy prices. Recent activity indicators for France are in contraction territory. This is consistent with a high risk of recession. In the rest of the Union, flexible rate mortgages (which are not the norm in France) are starting to eat into household purchasing power. Added to this is the presence of food inflation, which penalizes the most disadvantaged. Prices for olive oil, cattle (live cattle futures), cocoa, and orange juice are at historic highs. As bad news never comes alone, we have learned that the role of the euro in international payments has significantly decreased over the span of eight months. According to data provided by Swift a week ago, the share of the single European currency dropped to 23% last August from 38% at the start of the year. This is a significant blow. Contrary to what has been heard in recent months, it is not the dollar but the euro that is disappearing from the face of international payments. This is referred to as de-euroization. Several factors can explain this sudden decline in a short period. It can be assumed that the drop in the euro's share reflects the decrease in Russian gas imports to Europe within the framework of sanctions, which were paid in euros. We can also assume that more structural factors are added, like Europe's retreat from international trade. This would not be surprising. Looking at capital flow trends since the beginning of the year, we see that foreign investors are more cautious towards Europe and prefer to locate their assets in the United States rather than on the Old Continent. This is obviously an element that pushes the euro down in the long run since these flows influence the evolution of the balance of payments. Currently, major international banks are publishing their exchange rate forecasts for next year. What is striking is that many banks are rather optimistic about the EUR/USD with a target often between 1.12 and 1.15 for 2024. This is the case, for example, of Société Générale. We know from experience that long-term forecasts in the foreign exchange market are tricky as there are many parameters to consider (trade balance, monetary policy, interest rate differential, market players' psychology, risk appetite/aversion, etc.). However, we can accurately identify the major trends at work. At Mondial Change, we have difficulty seeing the euro rise sustainably. We expect the European Central Bank (ECB) to maintain its monetary policy unchanged in the medium term. The transmission of monetary policy to the rest of the economy is effective and affects all countries in the Union. Moreover, the disinflation process, although not linear, is well underway. There is therefore no reason to increase rates again. In fact, monetary policy should not be a differentiating factor for the euro in the immediate future. However, macroeconomics and traders' risk perceptions should exert a significant influence. Unless there is a miracle, eurozone growth should still lag behind that of the United States. If we add to this the more uncertain global economic environment, it is likely that capital flows will continue to recycle into the US market. This should therefore push the euro down. The US economy has many strengths. The latest publication of the ISM manufacturing index for September proves that the United States still has significant rebound capacity. All components of the ISM increased last week, except for prices paid which are collapsing. This is good news. It distances the specter of possible stagflation (anemic economic activity with persistently high inflation). Incidentally, the currency market welcomed this publication. The EUR/USD again fell below the 1.05 threshold in the wake of this. In Asia, the market is buzzing with rumors about an intervention by the Japanese Finance Ministry in Forex. The Japanese authorities denied this in a press release last Tuesday. But market movements on the JPY at the beginning of last week make such a hypothesis plausible. Exactly a year ago, Japan had already intervened to support its currency against the US dollar. If the yen's depreciation continues, which is plausible, one cannot rule out a coordinated intervention by Japanese and US authorities, as has been the case on many occasions in the past. This is generally the only effective lever to truly influence a currency's exchange rate over time. A solo intervention is generally doomed to failure. It is a futile effort that results in a waste of foreign exchange reserves. Elsewhere in Asia, central banks in the emerging market zone (excluding China) are beginning to question the opportunity of a rate cut (which is already the case in Latin America, for example). However, the strength of the US dollar seems to jeopardize in the short term the beginning of a monetary easing cycle in Asia. This will certainly be more of a topic for 2024 if the dollar index decreases slightly. Technical point We remain in a market environment dominated by the US dollar. This is notably perceptible against the euro, which remains in a downward trend (almost -2% against the dollar over a month). In the short term, the EUR/USD is likely to stabilize in the area around 1.05. The medium-term downside potential is intact, with possibly a dip around 1.0400-1.0350 by the end of the year, depending on how quickly the economic situation deteriorates in the eurozone. For now, we don't see what could reverse this trend. The supports and resistances shown below indicate the lows and highs within which the rates should move during the week. Announcements to follow The upcoming week will be mainly focused on inflation with the release of statistics for September in Germany (Wednesday), the United States (Thursday), and France (Friday). No major surprises are expected. The US figure will be closely scrutinized. The consensus expects a continued decline after a 3.7% rate over a year last August. Although there have been upward tensions on energy prices for three months (40% surge in oil prices over the period), this does not undermine the disinflation process in developed countries. In terms of monetary policy, we consider that the US Federal Reserve (Fed) has likely reached the terminal rate. This is also the case for the ECB, as previously stated. In the short term, monetary policy should therefore play a minor role in currency evolution. The debate on the opportunity of a rate cut should only arise early next year, depending on the extent of the economic slowdown. Currently, what will matter is the perception of risk, which is partly linked to rising bond yields and stock market trajectories. Below are the publications and events that should have a major impact on currency rate evolution.DayTimeCountryIndicatorExpected Outcome?10/11/202308:00GERConsumer Price Index (September)Previous at 0.3% month-on-month.10/11/202314:30USAProducer Price Index (September)Previous at 0.7% month-on-month.10/12/202314:30USAConsumer Price Index (September)Previous at 3.7% year-on-year. Further decline expected by economists' consensus.