Recession 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 or considered as a basis for engaging in any investment. The macro point The most notable feature of the recent weeks in the foreign exchange market is the lack of volatility. For example, the three-month implied volatility on the US dollar is currently at a two-year low. This can last a long time. But it's important to keep in mind that this is not eternal and therefore consider hedging against possible abrupt market movements. It's stagnating. Several countries are in recession: Germany, Denmark, Estonia, Finland, Japan, Peru, United Kingdom, etc. In Europe, Germany is in a bad position. We already knew that the German manufacturing sector was in trouble. The difficulties are worsening with the emergence of problems in the banking sector. The culprit is Pfandbriefbank (PBB). It's a venerable small German bank, based in Munich, whose history dates back to Frederick the Great (18th century) and hasn't gone bankrupt since 1901. It specializes in commercial real estate loans in Europe... and the United States. Unfortunately, since Covid, commercial real estate has been collapsing on both sides of the Atlantic. About 15% of PBB's portfolio - or 5.4 billion euros - is directly exposed to American commercial real estate, 80% of which involves office spaces. Significant losses are expected, which could lead to the bank's bankruptcy. This is what the market fears. Is there a systemic risk? Probably not. But other players in the commercial real estate sector will certainly suffer substantial losses this year. Some will need to be bailed out. Others will have to be sold at low prices. Compared to Germany, the situation in France is not as bad. Banks are healthy. The universal banking model seems to be proving itself, once again. Additionally, we should avoid a recession this year. But growth will remain sluggish. The government forecasts growth at 1% against an initially projected 1.4%. This is still optimistic, in our view. According to INSEE, GDP growth is expected to be only 0.2% in the first quarter and the second quarter. This would require 0.7% growth in the third quarter and also in the fourth quarter to reach 1% - the government's forecast. What could trigger a sudden acceleration in activity after the summer? To be honest, we don't see much, especially when fiscal policy will become more restrictive and therefore less supportive of activity. If we manage with 0.6%-0.7% this year, that would already be very good. We see that the economic landscape in the eurozone is far from encouraging. And yet, the European Central Bank (ECB) still refuses to ease its monetary policy. No one expected it to do so at its meeting last week. But the more time it takes to start lowering rates, the more the economy is likely to deteriorate, and the more rates will need to be lowered significantly to avoid the entire eurozone entering a recession. Across the Atlantic, the economic landscape is very different. GDP growth is expected to be close to 2% this quarter. That's a very good performance. The evolution of activity for the rest of the year will depend on the evolution of refinancing conditions, especially for SMEs, which will directly affect the American consumer. The job market is strong. Hiring is expected to be primarily in the public sector, according to us. It was only at the end of 2023 that employment levels in the public sector returned to their pre-pandemic levels - a year and a half behind total employment. Inflation is still somewhat high but decreasing. Pockets of concern relate to medical costs, food, and accommodation services where there is upward pressure on prices. This prompts the US Federal Reserve (Fed) not to lower interest rates immediately. This was indeed what its chairman, J. Powell, reminded during his testimony before Congress last week. We believe that a first rate cut, conditional on macroeconomic developments, is possible next June. This is in line with the consensus. Technical point The good health of the US economy, especially compared to the poor performance of the eurozone, is a major factor of attractiveness for investors. Unsurprisingly, capital flows will recycle into the US market, which structurally supports the dollar (but also stocks). There was a slight rebound of the euro in recent sessions. This is certainly a flash in the pan. We doubt that the EUR/USD pair can sustainably reconnect with the rise due to the eurozone's economic trajectory and the risk of monetary policy error on the part of the ECB.Across the foreign exchange market, volatility continues to be anemic. For example, three-month implied volatility on the US dollar is at a two-year low. It is difficult to know how long this will last. There may be structural factors explaining the low volatility. But keep in mind that this cannot last forever. Consider hedging to avoid abrupt market movements.The supports and resistances displayed below indicate the low and high points within which the rates are expected to evolve during the week.Weekly SupportsWeekly ResistancesS2S1R1R2EUR/USD1.06551.07901.10901.1155EUR/GBP0.83120.84010.86900.8711EUR/CHF0.93880.94150.96990.9715EUR/CAD1.44131.45901.48881.4901EUR/JPY160.17161.09163.55164.11 Announcements to follow The upcoming week should still be calm on the macroeconomic front. Inflation data across the Atlantic should not provide additional information regarding the pace of rate cuts. Everything has already been said by Powell before Congress. We expect macroeconomics to continue to confirm the outperformance of the US economy, which is a decisive advantage for the dollar against all other currencies.Below you will find the publications and events that should have a major impact on the evolution of exchange rates.DayTimeCountryIndicatorWhat to expect?03/12/202413:30USAConsumer Price Index (February)Previous at 3.1% year-on-year.03/13/202408:00UKMonthly GDP (January)Previous at -0.1% month-on-month.03/14/202413:30USAProducer Price Index (February)Previous at 0.3% month-on-month.03/15/202408:45FRConsumer Price Index (February)Previous at -0.3% month-on-month.