It's Getting Painful The information presented in this publication is provided for informational purposes only and does not constitute investment advice, nor an offer to sell, nor a solicitation to buy, and should not in any case serve as a basis or be considered as an incentive to engage in any investment. The macro point Volatility experienced a rebound on the foreign exchange market following the release of the consumer price index in the United States last week. The disclosed figure was poor. Inflation significantly exceeded analysts' expectations, standing at 7.5% year-over-year in January compared to 7.0% in December. Excluding volatile components, inflation remains uncomfortably high at 6%. This clearly shows that inflationary pressures in the United States are not solely the result of rising energy prices. Other factors are involved: the continuing congestion of international trade and the price-wage loop, among others. To convince the currency market of its ability to combat high inflation, the U.S. Federal Reserve will need to act decisively at its meeting next March. We are counting on a 50 basis point increase in the key interest rate, as are most FX participants. But that won't be sufficient. It is estimated that a key rate hike generally takes six to nine months to affect the real economy. Therefore, unless a miracle occurs, inflation is expected to continue rising in the coming months. We wouldn't be surprised if the consumer price index reaches the stratospheric level of 8% in February or March.Such pronounced inflationary pressures generally lead to major negative consequences on the economy. At such a level, they erase the gains in purchasing power obtained through wage increases in recent months. Some indicators are beginning to show that consumption is faltering in the United States. Retail sales were a significant disappointment in December, typically a month conducive to shopping due to the holiday season. Moreover, the NFIB small business optimism survey, published last week, showed that a majority of businesses (61%) significantly increased their selling prices in January. This is certainly just the beginning. Many analysts indicate that the Trump and Biden administrations injected too much money into the economy to deal with the pandemic's repercussions, leading to an inflationary spiral that will be difficult to stop. The task facing the U.S. Federal Reserve is challenging. No one would want to be in Jerome Powell's shoes right now.In the Eurozone, inflation is less high. There is no price-wage loop (except in a few highly strained sectors). Energy is the main cause of rising prices, as several members of the Governing Council have reminded in recent days (Christine Lagarde, Isabel Schnabel). However, contrary to what the European Central Bank hoped, everything indicates that inflation will persist longer than expected. The European Commission has significantly revised upwards its inflation forecasts for 2022, to 3.5% compared to 2.2% three months ago. It's a drastic adjustment in a very short period. The Commission anticipates a sharp decline in inflation starting in 2023 (to 1.7%). At this stage, it's a pious hope. The coming months will also be challenging for the European Central Bank.Lastly, the cycle of monetary tightening continues in emerging countries. Poland was very aggressive last week by announcing a 50 basis point increase in the key rate to 2.75%. The central bank clearly indicated that this is just the beginning and that similar hikes will take place as long as inflation has not peaked. It still increases and currently stands at 8.6% year-over-year in December. Surprisingly, the Polish zloty did not benefit from this decision.On the foreign exchange market, the EUR/USD moved within a range of just over 130 points around 1.14. The medium-term bearish potential remains intact, judging by the technical analysis, which gives us a target of 1.11. It could potentially be reached next March during the central bank meetings (U.S. Federal Reserve and European Central Bank). Until then, volatility should remain present. Furthermore, the euro shows a strong recovery against the Swiss franc (+1.94% since the beginning of the year). It's largely related to a probable intensification of Swiss National Bank interventions in the foreign exchange market and also a slight decrease in risk aversion. If the trend continues on the EUR/CHF pair, it could quickly rally to the resistance level at 1.0647, a level that hasn't been reached since October 2021.The supports and resistances displayed below respectively indicate the low and high points within which prices should move over the course of the week.SUPPORTSWEEKLYRESISTANCESWEEKLYS2S1R1R2EUR/USD1.11761.12461.15371.1657EUR/GBP0.82300.82870.85030.8596EUR/CHF1.04041.04381.06471.0729EUR/CAD1.41551.42021.45961.4687EUR/JPY130.27131.20133.10135.97The week ahead will closely resemble the one that just ended. Inflation will be the main focus. This time, it will not be the consumer price index but the producer price index. The consensus among economists is predicting a further increase in January (0.4% monthly change against 0.2% in December). A larger increase cannot be ruled out. Shipping carriers have reported that freight costs have significantly rebounded in December for the United States, which will directly impact producer prices. We believe this statistic will simply confirm the expectations of a 50 basis point increase in the key interest rate by the U.S. Federal Reserve next month.Below you will find the publications and events expected to have a major impact on the exchange rate developments.DAYTIMECOUNTRYINDICATORWHAT TO EXPECT?15/0211:00ZEW Economic Sentiment Index (February)A very sharp drop expected, to 32.0 from 51.7 previously.14:30Producer Price Index (January)The consensus expects a new monthly increase, to 0.4% from 0.2% in December 2021.16/0214:30Retail Sales (January)Rebound predicted at 1.7% after the disappointing figure in December (-1.9%).17/0214:30Philadelphia Fed Manufacturing Index (February)A new decline expected to 20.0. Last October, it was at 23.8.