No Inflation
This week will be mainly focused on the trade war and the American economy. Starting today, the European Union's retaliatory tariffs on American consumer products should be implemented. This is an immediate response to the taxes on steel and aluminum. It should be graduated to avoid upsetting Washington while Brussels is currently negotiating with the Trump administration regarding reciprocal customs taxes.
The macro point
Deflationary pressures are intensifying in the eurozone. At first glance, one might think this is good news. Not at all. It reflects a European economy facing weak demand and a too strong euro that is gradually starting to harm exports. We are entering the summer period. As always, statistics become rarer. In the eurozone, the European Central Bank (ECB), which feared a surge in prices at one stage, could face the opposite risk. Deflationary pressures are intensifying. We expect consumer prices to fall below the 2% annual variation threshold, which could force the central bank to revise its inflation forecasts downwards in September. In theory, this opens the door to more rate cuts than expected. The international context favors the decline in inflation, particularly due to two phenomena: The correction of energy prices, especially oil. After a temporary surge linked to geopolitical turmoil in the Middle East, Brent (the benchmark in Europe) has fallen below 60 dollars a barrel. This occurs in a situation of supply surplus. OPEC+ members are increasing production. In August, it is expected to reach 548,000 barrels per day. All this while demand is weak. The strength of the euro, which also reflects a widespread decline of the dollar. The nominal effective exchange rate of the euro (used for international comparisons) has risen more than 6% since the beginning of the year, reaching a record level. This is good news for imports. Obviously, it’s bad news for exports, which are less competitive. We expect the upward movement of the EUR/USD to continue in the coming months, with two targets: 1.2000 and 1.2345 (strong resistance unlikely to be breached soon). Off the record, the White House and the US Treasury view the dollar’s depreciation favorably, even if they acknowledge that it hasn’t had a notable positive effect on the US economy in terms of export boom or new investments. The dollar's decline is also a topic for the rest of the world. According to the options market, the Australian dollar and the South Korean won are among the currencies expected to appreciate the most in the coming months against the greenback. In the case of the Australian dollar, this is not impossible. The interest rate differential is rather favorable to the Australian currency. Moreover, it’s noted that the Reserve Bank of Australia (RBA) is in no hurry to ease its monetary policy. Last Tuesday, to everyone’s surprise, it kept its rates unchanged while the consensus expected a 25 basis point cut. At the emerging currencies level, the dollar is overvalued by 20% on average. In the case of some Asian currencies, like the Taiwanese dollar, it’s even a matter of 50%. That’s huge. There is therefore also a noticeable margin of appreciation for these currencies against the greenback. Finally, pressure is mounting in China for the authorities to do more to stimulate consumption, which accounts for only 40% of GDP. This is a very low level for a major economy. Several government advisers have spoken in the press to call for household consumption to be the number one priority for the next ten years – with a target contribution to GDP of 50%. Such a statement is unusual. It might be a test balloon… indicating that the Chinese government is about to make announcements.
Technical point
On the foreign exchange market, volatility has decreased in recent sessions – it's normal at this period. The trend is still bullish on the EUR/USD despite some profit-taking. The rise of the euro against the pound sterling is one of our strong convictions for the coming months. According to us, the risk of recession is higher in the United Kingdom than in other developed economies. We anticipate a drop in yields on British sovereign bonds and are positioned to sell the pound sterling against the euro and the Japanese yen. We expect the exacerbated slowdown of the labor market across the Channel to lead the Bank of England (BoE) to cut its rates faster, and more quickly than the consensus expects. The supports and resistances displayed below respectively indicate the low and high points within which the prices should evolve during the week. | Weekly Supports | | Weekly Resistances | |
|---|
| S2 | S1 | R1 | R2 |
| EUR/USD | 1.1598 | 1.1622 | 1.1890 | 1.2000 |
| EUR/GBP | 0.8499 | 0.8577 | 0.8699 | 0.8734 |
| EUR/CHF | 0.9258 | 0.9300 | 0.9410 | 0.9430 |
| EUR/CAD | 1.5788 | 1.5903 | 1.6200 | 1.6289 |
| EUR/JPY | 167.49 | 168.90 | 172.38 | 172.88 |
Announcements to follow
Moreover, U.S. inflation for June will be published this week. No surprise. We estimate that consumer prices should remain between 2-3% in the coming quarters. It's a bit far from the central bank's target. But it's not high enough to end the rate cut cycle expected to resume in September. There's nothing to expect from the late July FOMC meeting, however.
Below you will find the publications and events that should have a major impact on currency price developments.
| Day | Time | Country | Indicator | What to expect? |
|---|
| 07/15/2025 | 14:30 | USA | Inflation (June) | Previous at 2.4% year-on-year. |
| 07/16/2025 | 14:30 | USA | Producer Prices (June) | Previous at 0.1% month-on-month. |
| 07/17/2025 | 11:00 | EUR | Inflation (June) | Previous at 2% year-on-year. |
| 07/17/2025 | 14:30 | USA | Retail Sales (June) | Contracted in May. |
The information presented in this publication is communicated to you purely for informational purposes and does not constitute investment advice, a sales offer, or a solicitation to buy, and should not be used as a basis or be taken into account as an incitement to engage in any investment.