Pause on Rates 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, nor should it be used as a basis or considered as an inducement to engage in any investment. The macro point The US Federal Reserve is expected to maintain the monetary status quo this week, similar to the European Central Bank. It is likely that the process of interest rate hikes is over in the major developed economies. This means that the rate differential, which has so greatly influenced currencies in recent months, should now play a minor role. It's time for macroeconomics! The Bank of Canada (BoC) kept its main interest rate unchanged at 5%. This was also the case for the European Central Bank (ECB) last Thursday. In Canada's case, the fear of a real estate price collapse prompted the central bank to be cautious. In the eurozone, the high risk of a technical recession (two consecutive quarters of GDP contraction) and the steepening of rates (increase in interest rates in the bond market) certainly contributed to the monetary policy pause. Both central banks do not categorically rule out further rate hikes, depending on the economic situation. But given the latest indicators, it is unlikely in the short term. This is certainly good news when we see the surge in long-term rates in the European bond market. Four of the main economies in the eurozone face a complex budgetary situation. Germany is obviously a special case with a significant budgetary margin. Italy is unsurprisingly the main focus of financial markets. It remains the weakest link. The country has a high stock of debt to refinance in the short term, under unfavorable market conditions. Moreover, it records a budget deficit much larger than expected. However, we doubt that this will lead to a debt crisis similar to that of 2012. The market configuration is different. Central banks are there, even if they are gradually withdrawing through the process of quantitative tightening (selling bond assets to lighten their balance sheets). Above all, they still have the necessary tools to contain any risk of a lasting financial panic – like the ECB's OMT (Outright Monetary Transmission) program of unlimited sovereign asset purchases. The problem is rather that the debt burden continues to increase, which will lead to difficult budgetary trade-offs (repaying debt rather than investing). In the long term, high debt in such a market context often means low growth. This is the main risk for the future, especially for the eurozone. Geopolitical risk is always in the background. But its impact on the currency market is reduced. It is necessary to distinguish between what is widely talked about and what has real consequences on the markets. Typically, recent events in the Middle East have not caused financial market upheavals, or only very briefly on oil prices. The price of a barrel had temporarily rebounded when Iran threatened to implement an oil blockade against Israel (unlikely in fact). The WTI price is now around $84. This is nearly $10 lower than the end of September price - before the Hamas terrorist attacks. This clearly shows that geopolitical risk is not a determining medium-term factor in the markets. That being said, it is likely that we are entering a period marked by greater volatility, not so much because of geopolitical risk but because of economic uncertainty. This is already evident in the stock markets where investors react negatively to corporate quarterly results that confirm the scenario of pronounced growth decline. It is not excluded that the volatility in stocks spreads to other markets, particularly Forex. Technical point In the foreign exchange market, major trends remain unchanged from previous weeks. Geopolitical risk marginally supported the Swiss franc. But it is not the main factor. The strength of the Swiss franc is more related to its use as a hedge currency to protect against the risk of recession in the eurozone. The underlying trend is still upward for EUR/JPY as long as the Bank of Japan (BoJ) does not change its monetary policy. This is not expected to happen in November since the BoJ does not meet. A very slow exit from negative rates could occur in December according to market consensus. This is when the Japanese yen could regain strength. Finally, EUR/USD is still in a downward movement. There are far too many negative factors weighing on EUR/USD (particularly European macroeconomics). No rebound is possible in the short term as long as the pair remains below the resistance zone at 1.0750, in our opinion.The supports and resistances displayed below indicate the respective lows and highs within which prices are expected to move during the week. Announcements to follow Central banks will be back in the spotlight this week. We expect a monetary status quo from both the Bank of England (BoE) and the American Federal Reserve (FED). In the United States, investment bank Goldman Sachs published an interesting study last week showing that financial conditions have tightened by 80 basis points since the September FOMC meeting. This is an important positive signal as the Fed closely monitors the evolution of financial conditions to adjust its rate policy. It wants them to tighten to speed up the disinflation process. It seems that this is partly achieved. In this context, it is unlikely the Fed will raise rates again, possibly too much, at the risk of plunging the American economy into recession. The BoE is facing a somewhat different situation. The British economy is in worse shape than that of the United States, as evidenced by the sharp decline in recent PMI indicators (strongest drop in service activity since January). The disinflation process is also far from complete. But the BoE has every interest in waiting a bit before potentially raising rates again. Rushing in monetary policy generally leads to mistakes (example: Jean Claude Trichet raising rates amid the global financial crisis due to a temporary spike in oil prices). With central banks in a wait-and-see position or having reached the terminal rate, it seems likely that the rate differential should play a minor role in exchange rate developments in the future…at least until the possibility of rate cuts is mentioned.Below you will find the publications and events expected to have a major impact on currency developments.DayTimeCountryIndicatorWhat to expect?31/10/202303:30CHIManufacturing PMI (October)Previous at 50.2.31/10/202312:00EUConsumer Price Index (October)Previous at 4.3% year-on-year.01/11/202314:15USAADP Survey (October)Previous at 89k.01/11/202314:30USACentral Bank MeetingMain rate held at 5.50%.02/11/202314:00UKCentral Bank MeetingNo changes expected in main rates.03/11/202314:30USADepartment of Labor Employment Report (October)Previous at 336k and unemployment rate at 3.8%.03/11/202316:00USAISM Non-Manufacturing (October)Previous at 53.6.