Nothing to Expect

The information presented in this publication is provided purely for informational purposes and does not constitute investment advice, a sale offer, or a solicitation of purchase, and should not in any way serve as a basis or be considered as an incentive to engage in any investment.

The macro point

Nothing to ExpectThe Macro ViewIn recent weeks, several central banks have raised their key interest rates to counter inflationary pressures (the latest being the central bank of Iceland last week). However, monetary policy normalization is still not on the agenda in the United States and the eurozone. Even though the minutes of the last meeting of the Federal Reserve's FOMC showed that some members want to initiate a discussion on a possible tapering (slowing down the asset purchase program), a majority of members feel that the current monetary policy is appropriate and should remain unchanged for at least several more months. Therefore, no surprises are expected at the upcoming Fed meeting on June 15-16. We believe that the U.S. central bank will wait for more data on inflation dynamics and economic recovery to adjust its monetary policy if necessary. For the U.S., the real milestone is set for the end of August, at the Jackson Hole symposium (Wyoming, USA), which is often an opportunity for the Fed to convey significant monetary policy messages to market participants.

In recent days, similar questions have arisen regarding the monetary policy of the European Central Bank (ECB). Some analysts even believe that the ECB might precede the Fed in initiating a tapering process. Absurd. Even with the base effect related to commodities, inflation remains desperately below the 2% target in the eurozone (at 1.6% year-on-year in April according to last week's publication). Moreover, in our view, two major arguments oppose a tapering in the eurozone at present:

The ECB promised at the beginning of the crisis to maintain its ultra-accommodative stance until the eurozone GDP returns to its pre-crisis level, which should not be the case until early 2022 (see the March 2020 statement on the PEPP – Pandemic Emergency Purchase Programme);

The ECB's inflation forecasts, though regularly erroneous, do not confirm any durable surge in inflation that would necessitate a change in monetary policy. On the contrary, according to these forecasts, inflation will remain sustainably below the ECB's target in the months and years ahead.

All this confirms what we have been repeating for weeks: the risk of inflation materializing in the short and medium term in the United States and the eurozone is minimal. Under these circumstances, a change in monetary policy is not on the agenda. And even if tapering discussions may arise from the Fed (notably because growth is on track), this does not necessarily mean a drastic change in monetary policy in the near future. We remain in a world of ultra-low rates and unconventional monetary policy—at least in the context of developed economies.

Technical point

In the foreign exchange market, the tapering theme has not led to renewed volatility in the major pairs. In the short term, we continue to believe that EUR/CHF and EUR/JPY should continue to trade close to their current levels, around 1.10 and 133.0, respectively. However, due to the ongoing economic reopening, we anticipate a decline of the euro against the main commodity currencies (Canadian dollar, Australian dollar, and New Zealand dollar). We target a return of EUR/CAD towards 1.45 in the medium term, confirming the trend already followed for several months.

As for EUR/USD, last week’s break of the psychological threshold of 1.22 is undeniably an important signal for the forex market. A new test of 1.2250 (last week’s high) is possible in the coming sessions.

The supports and resistances displayed below respectively indicate the low and high points within which the prices should move during the week.

	SUPPORTS	WEEKLY	RESISTANCES	WEEKLY
	S2	S1	R1	R2
EUR/USD	1.1996	1.2071	1.2250	1.2387
EUR/GBP	0.8340	0.8483	0.8769	0.8912
EUR/CHF	1.0829	1.0891	1.1079	1.1100
EUR/CAD	1.4500	1.4598	1.4875	1.5060
EUR/JPY	130.05	131.24	133.63	134.84

For personalized advice on trends and currency hedging, contact our trading room:

Announcements to follow

While waiting for the central banks' meetings in June, traders' attention will once again focus on macroeconomic indicators in the coming sessions. However, there will be no top-tier statistics this week. The publication of the second estimate of first-quarter growth (in Germany and the United States) usually goes unnoticed. Marginally, we will watch the IFO business climate index in Germany, which should still remain well oriented, with a figure expected by consensus to rise to 98.0 against 96.8 previously. Unsurprisingly, this good figure simply reflects strong expectations regarding the ongoing economic reopening almost everywhere in the developed world. In this context of low macroeconomic news, technical analysis could be the main driver of fluctuations in the forex market.

Below you will find the publications and events that are expected to have a major impact on currency price trends.

DAY	TIME	INDICATOR	WHAT TO EXPECT?
25/05	08:00	Quarterly GDP (Q1)	New estimate at -1.7%
	10:00	IFO Business Climate Index (May)	Expected rebound to 98.0 against 96.8 previously.
	16:00	Conference Board Consumer Confidence (May)	Slight decline to 120.0 against 121.7 previously.
27/05	14:30	Quarterly GDP (Q1)	New estimate at 6.5% against 6.4% in first reading.
	14:30	Durable Goods Orders (April)	Consensus at 0.7% against 2.3% previously.

Did you enjoy this content? Share it!