It's Confirmed 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 in no way serve as a basis or be considered an incentive to engage in any investment. The macro point The month of May is traditionally calm on the foreign exchange market. This year is no exception. However, there is one statistic not to miss this week: the US core PCE index. We anticipate a 0.3% increase month-on-month—still too high to consider a forthcoming rate cut. There is now no doubt: the US Federal Reserve (Fed) will not cut rates in June. Governor Christopher Waller, considered a hawk by the market, indicated that the central bank could consider lowering rates in three months, provided consumer prices decrease substantially. The message is clear: statistics come first! In our view, the window of opportunity to ease monetary policy is significantly reduced this year. There is no doubt that nothing will happen in June. The market potentially expects a rate cut in September. However, this would require a decline in consumer prices for several consecutive months below 3%. They are currently at 3.4% year-on-year. This is ambitious. The November option is more credible if we only consider statistics. Alas, this coincides with the US presidential election. Even though the Fed regularly emphasizes that it is not influenced by the electoral calendar, this can be doubted. Imagine for a moment that the election is contested. This would lead to renewed volatility in the financial markets. It is hard to see the Fed choosing that moment to pivot its monetary policy. Ultimately, even though it is not our central scenario, we cannot rule out the possibility that the Fed simply decides not to cut rates this year. This is a possibility circulating in trading rooms, but it is not fully reflected in currency prices. Conversely, there is little doubt about the direction of monetary policy in the eurozone. Christine Lagarde confirmed the pivot for June again last week. The market anticipates at least three rate cuts this year. That's a lot. But it is not inconsistent considering the growth and inflation dynamics on the Old Continent. However, if the European Central Bank (ECB) cuts rates by 75 basis points while the Fed keeps them unchanged, the euro may wobble. We will quickly talk again about the risk related to imported inflation. From our perspective, an EUR/USD exchange rate around 1.0350-1.0300 starts to become a serious problem for the ECB to contain imported inflation. We are not there yet. For now, the market seems to have regained confidence in the euro. This can be explained by several factors: the growth trough was reached in the first quarter, monetary policy is relatively clear, capital flows are directed towards European stock markets, etc. All this favors the euro, at least in the short term. We doubt, for example, that the EUR/USD can sustainably breach the area at 1.10. A new catalyst is needed to increase investor confidence. We do not see what it could be. However, we are aware of the long-term downside risks weighing on the euro. The return of restrictive fiscal policy in the eurozone, which will compress growth, will structurally weigh on the euro in the coming quarters. Especially as US fiscal policy is expected to be strongly expansionary in the coming years, regardless of who the next tenant of the White House will be. Finally, the surprise rise in UK inflation prompts us to be cautious concerning the Bank of England's (BoE) rate cut timetable. The institution is likely to want to ensure that the inflationary surge is only temporary before easing its monetary policy. Therefore, a rate cut is more likely in August than in June (at the same time as the ECB). In summary, we anticipate a rate cut by the Bank of Canada (BoC) and the ECB in June. The BoE is expected to follow in August, and the Swiss National Bank (SNB) should trigger a second rate cut in September. On the Fed's side, it's less clear. But we do not expect any rate changes in June and July. It's too early to ease monetary policy. Above all, as we have been repeating in recent months, the US economy is cruising and does not need more cheap credit to function. Technical point The dollar index has slightly receded in recent weeks. We interpret this movement as a direct consequence of profit-taking. The strong dollar should be a constant parameter this year (partly due to the interest rate differential that will widen between the US economy and the rest of the world). The market is a bit more positive about the euro. However, we believe that the upside potential is limited (good news has been priced in). In the long term, the decline should resume against the US dollar. Note that the market has been discussing in recent weeks the possibility of a significant devaluation (not depreciation) of the Chinese yuan - to boost exports. In theory, it is possible. The Chinese economy produces production surpluses that need to be sold abroad. However, a devaluation is very risky and can lead to significant capital outflows that can destabilize the Chinese financial system. We doubt that this will happen. The support and resistance levels displayed below indicate the low and high points within which prices should move during the week.Weekly SupportsWeekly ResistancesS2S1R1R2EUR/USD1.06441.07111.09671.1030EUR/GBP0.83440.84110.86990.8712EUR/CHF0.96900.98091.00101.0055EUR/CAD1.45091.46091.49341.5020EUR/JPY167.55168.11171.01172.55 Announcements to follow The main statistic this week is the publication of the core PCE index, which is the Fed's preferred measure of inflation. Considering the evolution of producer and consumer prices, we expect a 0.30% increase over one month. This is still too high to consider an imminent rate cut in the United States. Below you will find the publications and events that should have a major impact on currency rate developments.DayTimeCountryIndicatorWhat to expect?May 27, 202410:00EURIFO Business Climate Index (May)Previous at 89.4.May 28, 202416:00USAConference Board Consumer Confidence (May)Previous at 97.0.May 31, 202414:30USACore PCE Index (April)Previous at 0.3% over one month and 2.8% over one year.