It's done The information presented in this publication is communicated to you for informational purposes only and does not constitute investment advice, an offer to sell, or a solicitation to buy, and should not be used or considered as an inducement to engage in any investment. The macro point This week, we should receive confirmation of the monetary policy divergence between both sides of the Atlantic. The ECB lowered its rates last week. The Fed will opt for the status quo this Wednesday. For now, the foreign exchange market doesn't seem overly concerned. But history teaches us that the rate differential is a major force driving currency movements. In this case, it is unfavorable to the euro. No surprises. The Bank of Canada (BoC) and the European Central Bank (ECB) started their rate-cutting cycle last week. The BoC seems confident in its ability to lower the cost of borrowing further while containing inflationary pressures. This is a bit less true for the ECB. It's worth noting that it raised its inflation forecast for 2025 to 2.2%. The reasons: wage increases, stronger growth, lower productivity, and persistent inflation in services. Unlike the American situation, wage increases are not absorbed by higher productivity. This is why the ECB remains cautious. Even though much will depend on upcoming inflation data, a further rate cut seems possible next September, around 25 basis points. However, as inflation is likely to be more volatile in the coming quarters, the monetary easing cycle is expected to be irregular. In the past, the central bank tended to lower or raise rates at each meeting. Now, it will depend on monthly published statistics ('data-dependent') and also on the stance of the U.S. Federal Reserve (Fed), even if Christine Lagarde is careful not to acknowledge it. The first pause will take place in July, as a rate cut at that time is now out of the question. There are also some weak signals that may have worried the ECB and argued for caution. Among others: an almost 40% increase in international shipping costs in May or the surge in raw materials. This concerns both agricultural commodities and precious or industrial metals. The causes are multiple. In the case of orange juice, which is becoming almost a luxury product, it's linked to an unprecedented drop in harvests in Brazil and Florida – the two main global producers. When concentrated orange juice reaches the port of Rotterdam, the main entry point before arriving at the European consumer's table, it costs on average $6000 per ton. That's equivalent to two Louis Vuitton travel bags. Unthinkable a few years ago. Butter, another staple product, follows a similar trend. Butter futures contracts are now at a high point since November 2023. The reason: the summer 2020 drought that reduced both the quality and quantity of grass available for dairy cows, and the rise in fertilizer prices since the war in Ukraine. All this could sustain short-term inflationary pressures, complicating the task for central banks, as well as consumers and businesses. One would be mistaken to believe that price increases are definitively over. Inflation is like toothpaste: once it's out of the tube, it's very difficult to put it back in! Technical point The foreign exchange market did not overreact to the ECB's decision. A very fleeting surge of the euro against the dollar was observed following the statement – probably in reaction to the upward revision of inflation forecasts for the next year. But fundamentally the euro remains stable against its main counterparts. The reality is that the ECB meeting did not really bring new information. The real news last week was mainly the rally on the Japanese yen. This is mainly explained by two factors: expectations that the Bank of Japan (BoJ) will reduce asset purchases at its June 14 meeting – akin to a form of soft monetary tightening, and especially the unwinding of carry trade positions on several pairs like the JPY/MXN (yen vs Mexican peso) and JPY/INR (yen vs Indian rupee) after election results in India and Mexico. These are mainly short-term phenomena that are not intended to reverse the long-term downward trend of the yen. We remain convinced that the weak yen is here to stay and that the Japanese authorities are quite comfortable with it. After all, the recession was avoided at the end of 2023 only thanks to the good dynamics of exports which largely reflects the effects of a weak exchange rate of the national currency. To watch: the appreciation of the Swiss franc against the euro. This is in no way the result of interventions by the Swiss National Bank (SNB). It seems that institutional investors are seeking safe havens. As there is less and less good-quality sovereign debt (rated AAA), they are turning to gold and the Swiss franc. This is structural. The supports and resistances displayed below indicate respectively the low and high points within which prices should evolve during the week.Weekly SupportsWeekly ResistancesS2S1R1R2EUR/USD1.06901.07111.09451.1000EUR/GBP 0.84230.84650.86110.8690EUR/CHF 0.96010.96430.98981.0000EUR/CAD 1.47091.48881.49791.5010EUR/JPY 167.90168.11171.12172.01 Announcements to follow Aside from the BoJ meeting we have already mentioned, traders' attention will be focused on the Fed meeting. The issue is not whether rates will move. They will remain unchanged. It will, however, be interesting to know when it anticipates a drop in inflation below the symbolic threshold of 3%. Consumer prices must absolutely be below this level for several consecutive months for the Fed to consider the start of an easing cycle. It's not guaranteed in advance. In April, consumer prices increased by 3.4% year-on-year. You will find below the publications and events that should have a major impact on currency price movements.DayTimeCountryIndicatorWhat to expect?12/06/202414:30USAConsumer prices in MayPrevious at 3.4% in monthly variation.12/06/202420:00USACentral bank meetingNo change in monetary policy14/06/202405:00JAPCentral bank meetingNo rate increase. However, a slowdown in the asset purchase program may be announced.