It's Not Quite There Yet The information presented in this publication is provided for informational purposes only and does not constitute investment advice, an offer to sell, 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 When we think of the macroeconomic forecasts made at the end of last year (which predicted a marked recession, a European blackout, and in some cases financial destabilization), we realize that we are doing quite well so far. Not all indicators are green, far from it. But the economy on both sides of the Atlantic (the United Kingdom is a case apart) shows impressive resilience.In the eurozone, the good news is that inflation declined significantly in December. In France, the consumer price index (CPI) reached 6.7% on an annual basis compared to 7.3% expected by the consensus of economists. The margin of error is enormous. In Germany, inflation is also significantly down, at 8.7% over the same period compared to 10.4% in November. The decrease is mainly due to two main factors: the sharp drop in energy prices and, for some countries, like Germany, the implementation of temporary measures to lower the electricity bills of households and small and medium-sized enterprises. The drop in energy prices is massive. In the space of a month, gas prices tumbled by 50% to reach their lowest level since October 2021. It's as if the effect of the war in Ukraine had completely disappeared. Added to this are mild temperatures (which reduce the need for heating) and the implementation of energy sobriety measures (especially on the industrial side). Is the drop in energy prices sustainable? We doubt it. The oil market is likely to face a supply deficit this year due to insufficient production from OPEC+ and sanctions against Russian oil. Moreover, once winter is over, it will be necessary to replenish gas stocks in Europe without relying on Russia. This is likely to create upward pressure on wholesale market prices again. All this should rather pose a problem for the second half. In the short term, inflation is indeed declining. But since this phenomenon is certainly not sustainable, no immediate change in monetary policy from the European Central Bank should be expected. The process of raising rates and reducing the balance sheet (which is also a lever to tighten monetary policy) will continue.On the other side of the Atlantic, we are facing a rather paradoxical situation. Economic indicators are too good. Yes, you read that right! Economic indicators, particularly those relating to the labor market, are good, very good. The employment component of the manufacturing PMI is still in expansion territory (above 50). The ADP survey of private employment came out much better than expected with 235,000 job creations in December (this is a rather very sustained pace). Finally, weekly unemployment claims (this is the best indicator for having a real-time view of the US labor market) remain stubbornly low, at just 204,000 according to the latest figures released last Thursday. Normally, this would be excellent news. But in a period of high inflation, it's bad news. The Federal Reserve (Fed) absolutely needs a deterioration in the labor market (hence a significant increase in unemployment) to reduce the price-wage spiral and sustainably lower inflation. For now, the rate hikes do not seem to have had the desired effect. Therefore, the process of monetary tightening is expected to continue. At the end of 2022, many forex market analysts had mentioned a possible upcoming pause from the Fed. This is clearly not on the horizon. As indicated by the minutes of the central bank's December meeting, the issue is mainly to determine the scale of the next rate hike (whether it will be 50 basis points or 75 basis points).On the forex market, the start of the year is rather unfavorable for the euro. The only positive performance is against the JPY (+0.26%). This is quite paradoxical as we observe the return of risk appetite in the stock markets. Admittedly, the correlation is not always positive. But an increase in risk appetite in the stock exchange often rhymes with a rise in the euro. Against several currencies (GBP and USD in particular), the euro is in a phase of consolidation. We do not expect volatility to increase significantly this week. Traders are mainly waiting for next month's central bank meetings to gain a little more visibility on the pace of rate hikes (this is the main issue for currencies at the start of the year). From a technical analysis point of view, the EUR/USD pair faces two major weekly resistances located at 1.0708 and 1.0809. In the absence of significant market movers, it is likely that the pair will remain in the 1.05-1.07 range in the coming sessions.The supports and resistances shown below indicate the low and high points within which prices are expected to move during the week.SUPPORTSWEEKLYRESISTANCESWEEKLYS2S1R1R2EUR/USD1.03701.0481.07081.0819EUR/GBP0.8730.87780.89140.9020EUR/CHF0.96200.97240.99030.9934EUR/CAD1.40711.41961.44811.4643EUR/JPY135.74138.1142.23143.86For months, we have been talking about only one topic in the economy, it is inflation. This will also be the case this week. After having the figures for December in the eurozone, we will have those for the United States for the same period. Due to the decline in the energy component, inflation is expected to decrease substantially in December (6.7% on an annual basis). This is good news. But as we indicated above, this is certainly only temporary. Therefore, there will be no lasting consequences on exchange rates and the Fed's monetary policy, in our view.Below are the publications and events that should have a major impact on currency price developments.DAYTIMECOUNTRYINDICATORWHAT TO EXPECT?01/1214:30Consumer Price Index (December)Strong decline expected at 6.7% on an annual basis vs 7.1% in November01/1308:00Manufacturing Production (November)Previous at 0.7% (monthly variation)