Mid-Year Review

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The macro point

Mid-Year Review Macro Outlook As the first half of the year comes to a close, it's a good time to take stock of this eventful 2021. Economic recovery is visible in all major economies. In the United States, the peak of growth has likely already been reached, but the prospects remain very good due to new stimulus measures (notably in infrastructure). The American recovery is leading to significant inflationary pressures, both in the manufacturing and service sectors. However, the risk of a wage-price spiral is limited. Apart from some specific sectors (like catering), wage increase expectations remain moderate. In the short term, the U.S. central bank is expected to maintain a highly accommodative stance. The market anticipates a first rate hike in January 2023 (compared to April 2023 a few weeks ago). The main focus this summer will be on discussions about central bank tapering. However, it is only at the Jackson Hole meeting at the end of August that traders should have more information regarding the possibility of a slowdown in central bank asset purchases. In the Eurozone, we expect a clear acceleration of growth in the second half. The Eurozone is slightly behind in terms of the economic cycle compared to the United States and China. Economic indicators published last week (PMI indices and German IFO index) confirm that the Eurozone exited the double-dip recession linked to the pandemic and lockdown measures in the second quarter of this year. Even though the risk of a Covid resurgence remains due to variants, it seems likely that a widespread lockdown is now excluded thanks to the progress made in a few months in vaccination. Unlike the situation in the U.S., inflation in the Eurozone is not a major concern. As shown by the latest PMI indices, price pressures remain limited to the manufacturing sector and are mainly due to the base effect linked to energy prices and persistent disruptions in international trade (which are likely to worsen in the short term due to last week's closure of the strategic port of Shenzhen in China because of the pandemic). By the end of the year, the ECB is not expected to substantially change its monetary policy. However, we expect the conclusion of the central bank's strategic review by the end of the summer. This could lead to a more significant role in combating climate change. Across the Channel, the few weeks’ delay in the economic reopening is not expected to have significant consequences on growth. The UK GDP is expected to grow by 7% this year. The BoE expects inflationary pressures to remain in the short term, but they are considered temporary. Interestingly, the central bank's statement, released last Thursday after its monetary policy meeting, mentioned the terms 'temporary' and 'transitory' 25 times in relation to inflation. Consequently, a short-term change in UK monetary policy is unlikely from our perspective. Finally, in France, with the easing of health restrictions, the business climate is significantly improving as well as employment prospects in all sectors, especially in merchant services. Fears about a jump in unemployment have proven unfounded. According to the latest URSSAF figures, hirings on contracts of at least one month reached a record level of 786,000 in May. Everything indicates that the dynamic remains very positive for France. The only downside concerns the high level of indebtedness of some companies, which could lead them to invest less in the coming years – a problem we have often highlighted.

Technical point

In the foreign exchange market, the volatility spike observed in the week leading up to June 20 has eased. Emerging currencies have been mixed since the FED meeting. The Brazilian real is up by more than 2.3% since the FOMC while the South African rand has plunged by nearly 3% over the same period. This proves that the foreign exchange market still lacks strong conviction regarding the future of US monetary policy and the possibility of upcoming tapering.Among major currencies, the euro has traded within a range of over 100 pips against the US dollar over the last five sessions. The EUR/USD pair remains anchored near the psychological threshold of 1.20. The market remains cautious. Breaking the resistance at 1.2059 could allow for an upward acceleration. Conversely, a drop below 1.1840 could open the door to a fall towards 1.1704 in the medium term.As for the EUR/CHF and EUR/GBP pairs, there are still no significant movements to mention. Volatility remains desperately low.The support and resistance levels displayed below indicate the low and high points within which prices should evolve during the week.

	SUPPORTS	WEEKLY	RESISTANCES	WEEKLY
	S2	S1	R1	R2
EUR/USD	1.1704	1.1840	1.2059	1.2253
EUR/GBP	0.8400	0.8414	0.8637	0.8676
EUR/CHF	1.0748	1.0837	1.1102	1.1150
EUR/CAD	1.4500	1.4520	1.4757	1.4835
EUR/JPY	129.69	131.69	134.76	135.00

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Announcements to follow

This week will be mainly marked by US news, with the release of employment figures on Friday. After some slightly disappointing labor market figures in recent weeks, traders will closely monitor the level of job creation. The pandemic's decline and the end of support checks to households in more than twenty states should logically lead to a decrease in the unemployment rate. However, caution is advised. Statistics, of all kinds but especially related to the labor market, have been highly volatile since the pandemic began in March 2020 (explained by both information collection difficulties and methodological issues). In other words, it would be wrong to draw conclusions about the future of US monetary policy from the figures released this Friday.Below you will find publications and events that should have a major impact on currency rates.

DAY	TIME	INDICATOR	EXPECTATION
29/06	16:00	Consumer Confidence – Conference Board (June)	The consensus expects a rise to 118.5 from 117.2 previously.
30/06	11:00	Consumer Price Index (June)	Previous at 2% year-on-year.
	14:15	ADP Survey (June)	Expected slowdown to 450k from 978k in May.
01/07	16:00	ISM Manufacturing PMI (June)	Consensus at 61.1 versus 61.2 previously.
02/07	14:30	US Employment Report (June)	The unemployment rate is expected to fall to 5.7% (from 5.8% previously) and job creation to 575k (from 559k in May).

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