Return of Volatility

The main focus this week will be American employment. Economists estimate that new jobs created in September could reach the threshold of half a million after a disappointing August (235,000). The official unemployment rate is expected to fall to 5.1% of the workforce. Strong statistics could open the door to an official tapering announcement by the Fed at its upcoming meeting on November 2 and 3. This would also be a positive signal for the US dollar. We could therefore see a greater depreciation of the euro against the greenback, potentially reaching the target zone of 1.1500.

The macro point

Return of volatilityWe remind you of the organization of an exceptional webinar with AFTE (Association Française des Trésoriers d’Entreprise) on October 14 at 11:30 AM. The topic discussed will be: Best practices, tools, and strategies to optimize foreign exchange risk management. It will be co-presented by Hubert Bigeard, head of Mondial Change's trading room, and Lionel Jouve, Vice President of the AFTE Fintech commission. If you are not yet registered, you can do so directly on the AFTE website via this link: I registerThe macro pointThe third quarter is over. The big winner in the currency market is undoubtedly the US dollar. The dollar index, which indicates the evolution of the greenback against a basket of representative currencies, was just short of the strategic threshold of 90 dollars at the beginning of June. It ended above 94 dollars at the end of September. The rise of the American currency reflects both the expectations of a strong economic rebound from the United States, and the ongoing concerns about the trajectory of inflation and the evolution of the pandemic.

The trajectory of inflation remains uncertain. In September, inflation reached a high point in France at 2.1% over a year. The price increase primarily reflects a significant jump in energy prices (+14% over a year). The same phenomenon is observable in several European countries, notably in Germany. In the short term, everything indicates that inflation will remain at an uncomfortable level, particularly due to supply chain issues and the rising cost of energy. For now, consumption is showing resilience. After a setback in July (-2.4% over a year), French household consumption expenditures increased by 1.0% over a year in August. However, we will have to wait for the September figure, in about a month, to see if inflationary tensions are starting to harm household demand.

The evolution of the pandemic is also a problem. In France, it is under control. The hypothesis of a new lockdown is excluded. We mentioned it several months ago. The number of daily deaths is below 50. The number of hospitalized people is around 8000. The health pass, which will be necessary until next summer and is now mandatory for 12-17 year olds, does not cause significant impacts on economic activity. The recovery is here. This is not the case everywhere. In Asia, economic activity is still disrupted by the pandemic. In China, the vaccination rate (for both doses) is only 55%. The government hopes to reach 80% by the end of the month. Impossible. Even with coercion. This means that supply chain disruptions, previously presented as temporary, could last a bit longer. China does not hesitate to close some ports, including strategic ones, when Covid cases are identified. The slow pace of vaccination as well as maintaining a zero Covid strategy in many Asian countries means that access to intermediate goods could be complicated and costly for many months to come. This is one of the main risks weighing on economic dynamics. It also explains why the US dollar has performed well against its main counterparts in recent months.

Technical point

Unsurprisingly, the euro is down against the US dollar in the third quarter. The decline is 2.27% in three months. It has accelerated in recent sessions. The euro fell by nearly 1.14% last week, falling below the psychological threshold of 1.1600. There could be a slight technical upward rebound after such a significant drop. But it is very likely that the medium-term trend remains downward. The next technical level to watch is at 1.1500. The euro has also lost significant ground in recent sessions against other currencies: the Canadian dollar, the Japanese yen, and the Swiss franc. The only exception is against the British pound. The EUR/GBP is in a very slight rise, around 0.08% in weekly variation. The pair remains within its three-month range between 0.85 and 0.86. The last attempt to break out failed. The supports and resistances displayed below indicate the low and high points within which the rates should move during the week.

	SUPPORTS	WEEKLY	RESISTANCES	WEEKLY
	S2	S1	R1	R2
EUR/USD	1.1395	1.1500	1.1757	1.1792
EUR/GBP	0.8400	0.8481	0.8615	0.8658
EUR/CHF	1.0733	1.0783	1.0991	1.1100
EUR/CAD	1.4500	1.4633	1.5014	1.5197
EUR/JPY	125.34	127.27	130.46	131.12

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Announcements to follow

Below you will find the publications and events that should have a major impact on the evolution of currency rates.

DAY	TIME	INDICATOR	WHAT TO EXPECT?
10/05	16:00	ISM Non-Manufacturing PMI (September)	Still expected to expand significantly, at 61.3 against 61.7 previously.
10/06	14:15	ADP Employment Report (September)	Consensus at 475k versus 374k in August.
10/08	14:30	US Employment Report published by the Department of Labor (September)	Job creation is expected to increase significantly (500K against 235K in August). The official unemployment rate is expected to fall to 5.1% against 5.2% previously.

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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 as a basis or taken into account as an inducement to engage in any investment whatsoever.