Inflation Again and Again The information presented in this publication is provided purely for informational purposes and does not constitute investment advice, a sales offer, 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 Again and again inflationMacro pointWe warned you, the theme for the month of May is inflation. As anticipated, the Consumer Price Index (CPI) in the United States in April saw a strong surge: +0.8% over a month (including a +0.4% increase in food prices and a +10% increase in used vehicle prices – the largest monthly increase since 1953) and +4.2% over a year (which is slightly more than the figure expected by consensus). Everyone had their say. Among the most far-fetched: the notion that the rise in inflation is the direct adverse effect of the flood of liquidity by the American central bank. Let's take stock. The surge in inflation, which was predicted by economists, is mainly explained by three factors: 1) the rise in airline tickets - which reflects a return to normal for the airline sector; 2) the increase in used vehicle prices directly linked to temporary supply difficulties and 3) the rise in wages in the restaurant industry, which is passed on to customer prices as we mentioned last week for the industry. In all likelihood, even if inflation is likely to remain high within the framework of the economic reopening process that has been initiated, we are nevertheless not facing a new inflationary cycle. On the contrary, we should return to a disinflationary cycle by 2022-23, as was the case before the pandemic. What is important to understand is that the surge in inflation, as long as it is considered transitory by central banks (and this is also our opinion as you will have understood), will not lead to a change in monetary policy. Rates will remain durably at low levels and even if we can envisage some adjustments in the pace of asset purchases, quantitative easing policies will endure on both sides of the Atlantic for a very long time. The debate on the nature of inflation (transitory rise or durable rise) is likely to be a very important marker in the coming months on financial markets, including the foreign exchange market. Therefore, it should be expected that the upcoming inflation figures (both the consumer price index and the producer price index) will be closely scrutinized by traders as much as unemployment and employment figures. Although volatility remains very low in the currency market, we cannot rule out temporary surges in volatility upon the publication of these figures in the short term. Technical point At the currency level, the EUR/USD has begun a slight consolidation in recent sessions (with a negative weekly change of -0.46%). In the absence of a catalyst, the pair should not be able to break through the psychological threshold of 1.22 for now, which could then open the door to 1.23. According to us, the ongoing general decline of the US dollar is not certain to continue by the end of the year. Hence the necessity to plan a good exchange coverage strategy if you are exposed at the EUR/USD level. Another pair we have closely monitored in recent sessions is the EUR/JPY. The euro continues its strong progression: +0.22% over a week and +1.44% over a month. The pair is still hovering around the 132.55 area, which corresponds to the 78.6% Fibonacci retracement level. We are still counting on a return to the highs of April and September 2018 around 133.13-49. The supports and resistances shown below indicate the respective lows and highs within which the prices should evolve during the week.SUPPORTSWEEKLYRESISTANCESWEEKLYS2S1R1R2EUR/USD1.19211.20431.22931.2349EUR/GBP 0.84930.85860.87330.8771EUR/CHF 1.08041.08871.10521.1135EUR/CAD1.43611.45541.49391.5132EUR/JPY129.36130.56132.94133.13For personalized advice on currency trends and hedging, contact our trading room: Announcements to follow This week will still be marked by inflation. Price increases are not just an American story. It's also a European story. According to the consensus, the CPI is expected to reach 1.6% in April year-on-year – mainly due to transient phenomena linked to the economic reopening. However, we are far from the levels reached across the Atlantic. It is therefore likely that the market will pay a little less attention to this figure than to the US CPI last week. We will also note the publication of the German manufacturing PMI for May, which should remain at a high level (66.0 according to expectations), confirming that this crisis is very atypical. It has hardly penalized the manufacturing sector, unlike all other recessions. Below you will find the publications and events that should have a major impact on currency trends.DAYTIMECOUNTRYINDICATORWHAT TO EXPECT?18/0501:50Quarterly GDP (Q1)Expected decline at -1.2%.19/0511:00Annual CPI (April)Consensus forecasts a jump to 1.6% year-on-year compared to 1.3% previously19/0520:00FOMC meeting minutesThe focus will mainly be on the diagnosis regarding the inflation trajectory – no surprises expected.20/0514:30Weekly unemployment claimsPrevious at 473k.21/0509:30Manufacturing PMI (May)Still very high level at 66.0 according to consensus.Did you like this content? Share it!