Six letters 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 considered as an inducement to engage in any investment activity. The macro point If there is one message to take away from last week, it is that central banks will continue to raise their policy rates to combat persistent inflation, and certainly to a greater extent than financial markets had anticipated. Just a few years ago, monetary policy was a stabilizing factor for markets. That is no longer the case. It is difficult to predict what the ECB will do in three months. This potentially leads to spikes in Forex volatility that currency traders do not always anticipate well. Sintra. It is a medium-sized city in Portugal (around 370,000 inhabitants) located about 25 kilometers northwest of Lisbon. There are several activities to do: visit the colorful Pena National Palace, the Moorish Castle and its impressive fortifications, or explore the small villages, sometimes by the sea, a few kilometers from the city. And then, each year, it is a ritual, the European Central Bank (ECB) organizes its grand meeting that brings together central bankers from the world's main economies. Usually, this event attracts little interest from financial markets (unlike the famous Jackson Hole symposium in the United States at the end of August). Important announcements are rare. This year, however, is different. Indeed, if traders still had doubts after recent monetary policy decisions, they can no longer have them: the tightening cycle will continue. It is a global phenomenon (with a few exceptions). We have listed for you the most hawkish central banks (meaning those that have clearly indicated the need to further raise the cost of money to fight inflation). In ascending order, they are the Bank of Japan, the U.S. Federal Reserve (Fed), the ECB, and the Bank of England (BoE). Fundamentally, there is no big surprise. We already knew that further rate hikes would occur. However, we were certainly not prepared for such a hawkish tone. Take the example of the ECB. Christine Lagarde, its president, not only indicated that the peak of inflation is probably not yet reached in the eurozone (a step back from her previous statements) but also that it may be necessary to go beyond market expectations to curb inflation. She particularly emphasized wage growth, which she sees as a new axis of inflation in the Union. Added to this are recent energy tensions (especially gas and electricity prices) that confirm that the energy crisis is certainly not entirely over. The Fed chairman, Jerome Powell, echoed this sentiment. He pointed out that there are still many uncertainties and statistical inconsistencies regarding the real state of the post-Covid economy. For example, it is quite surprising that American consumer confidence is doing so well during a period of high inflation (even though there have been redistributive measures to partially offset the general rise in prices). While nearly everyone expects a recession in the United States (which would be logical in terms of the economic cycle and in view of credit flows entering the economy), last week's published indicators do not support this perspective at all. New home sales have risen the fastest in a year according to recent data. Real estate prices have increased for the third consecutive month. Durable goods orders exceed expectations. Finally, consumer confidence is at its peak for 2022. It’s surprising. It’s even disconcerting. It seems increasingly evident that the post-Covid economy is more resilient than it appears. This is a real challenge for central bankers since strong demand is an obvious aggravating factor in inflationary tensions. For a central bank, there are not many actionable tools. The only way to combat rising prices is to increase the cost of money. It is therefore not unlikely that rate hike expectations in major global economies are underestimated this year (will the Fed raise its rates in July but also in September?). What is certain at this stage is that there will be no rate cuts this year in the United States, contrary to what the market consensus had anticipated (first rate cut expected next November). Uncertainty about monetary policy will obviously have repercussions on the forex market in the medium term. For now, operators are banking on a phase of depreciation of the dollar index starting in the fall. This is by no means certain. Hence the importance of adopting a relevant hedging strategy. Technical point On the foreign exchange market, the EUR/USD remains in positive territory on an annual basis, but the pair has lost significant ground against a strengthened US dollar due to Fed rate hike prospects. We estimate that the pair could evolve within a large range during the second half between 1.0500 and 1.1250. It will certainly be difficult to reach the peak expected by treasurers at 1.15. For now, the euro lacks an upward catalyst. However, the euro continues to show solid performance against the Swedish krona (SEK). It has reached a new low against the single currency. Since the beginning of the year, the EUR/SEK has increased by more than 5%. The upward potential is certainly not yet exhausted. We have a target at 12.00 against 11.80 currently. Sweden's economic troubles continue to heavily weigh on the national currency. Finally, the trend is still positive for the euro against the Japanese yen (already up more than 12% since January). However, caution is needed for possible profit-taking. It would logically be after such a rise.The supports and resistances displayed below indicate the low and high points within which rates should evolve during the week.Weekly SupportsWeekly ResistancesS2S1R1R2EUR/USD1.06201.06991.09901.1150EUR/GBP 0.83890.84340.87800.8904EUR/CHF 0.95100.96200.99091.0025EUR/CAD 1.41501.42991.45991.4680EUR/JPY 151.99154.50159.10160.00 Announcements to follow An American week is beginning. Many indicators are on the agenda, but the reality is that only the US Department of Labor employment report (publication on Friday) will truly impact currencies. It is closely followed by traders and creates volatility on USD pairs. The latest publications on the US labor market have tended to confirm that the dynamic is very positive (even too positive). This leaves the Fed free to raise its rates. If this is still the case this week, expect the next Fed meeting in July to result, without a shadow of a doubt, in another increase in money rates by at least 25 basis points. In theory, this is a supporting element for the US dollar.Below are the publications and events likely to have a major impact on currency rate evolution.DayTimeCountryIndicatorWhat to Expect?03/07/202316:00USAADP Nonfarm Employment Change (June)Previous at 278k.06/07/202314:15USAConference Board Consumer Confidence (June)Increase of 25 basis points.06/07/202316:00USAISM Non-Manufacturing Index (June) Previous at 50.3.07/07/202314:30USAUS Department of Labor Employment Report (June)Unemployment rate at 3.7% and job creations at 339k in May.