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The macro point

We have never hidden our skepticism regarding the European Central Bank's (ECB) wait-and-see approach in combating high inflation. While all other major central banks (such as the U.S. Federal Reserve and the Bank of England) have initiated a cycle of rate hikes, the ECB has consistently refused to do so. Things may be changing. Last Thursday, the institution's vice-president, Luis de Guindos, clearly indicated that a first rate hike in the eurozone could take place as early as next July. This is a significant turnaround, especially given that de Guindos is considered one of the doves within the Governing Council (meaning he is among the members inclined to maintain a very accommodative monetary policy for a longer duration). Subsequently, the money market adjusted its rate hike expectations. It now anticipates three hikes of 25 basis points each by the end of the year. The euro reacted positively to this announcement, with the EUR/USD climbing to 1.0936 and the EUR/CHF reaching 1.0372 last Thursday. Subsequently, profit-taking occurred. It is still too early to know the exact timetable for the ECB's monetary tightening. It should be detailed next June. But everything suggests that Frankfurt has finally realized the need to act against inflation.

Moreover, the latest estimate of inflation in March was published last week. It stands at 7.4% annually and 2.4% monthly. It's painful. In several countries in the zone, inflation exceeds this level. It reaches 7.6% in Germany, 7.9% in Luxembourg, 8% in Greece, and 9.3% in Belgium. France is a bit spared with inflation at 5.1% but rising rapidly. At this stage, no economist anticipates a soon decline in price increases. It is likely that this issue will need to be managed at least throughout 2022, and possibly beyond. This is a challenge for many companies, particularly those unable to pass on at least some of the increases to subcontractors and/or consumers. As we announced at the beginning of the year, we have probably entered a new inflationary era (but which has nothing to do with the 1970s period since, at that time, wages were indexed to inflation in most European countries).

Across the Atlantic, inflation is also a major theme. The Beige Book, which provides a detailed monthly overview of macroeconomic developments in key U.S. regions, confirmed that demand remains generally strong, but rising input costs combined with a nearly full-employment labor market create future uncertainties. However, regarding activity evolution, there are no signals indicating an upcoming recession (some market operators already evoke the specter of a recession soon in the United States). It seems certain that the U.S. Federal Reserve will increase its benchmark rate by 50 basis points in early May. In contrast, uncertainty remains about the pace of subsequent appreciation. 35% of traders predict a 75 basis point hike next June. It's not a completely far-fetched scenario. The central bank will have to strike hard to show its determination to lower inflation. It is currently at 8.5%. Many analysts do not exclude it reaching the psychological threshold of 10% by summer. Even with marked wage increases, such a level of inflation invariably leads to widespread impoverishment of the population. The same risk is also evident in the eurozone.
On the foreign exchange market, the euro ended last week mixed (down against the U.S. dollar and Japanese yen, but up against the British pound, Swiss franc, and Canadian dollar). Based on technical analysis, the trend remains bearish on EUR/USD with a next target (acting as support) at 1.0600. This is a medium-term objective. The euro has also declined against the Japanese yen, but this is rather due to profit-taking. We do not rule out a return to the 140 area shortly. The EUR/JPY pair could continue to be quite volatile in upcoming sessions. Finally, it seems that the Swiss National Bank's interventions on the exchange are a real success. The EUR/CHF is moving away from parity and could soon reconnect with the price zone of 1.04-1.05.

The supports and resistances listed below indicate respectively the low and high points within which rates should evolve during the week.

	SUPPORTS	WEEKLY	RESISTANCES	WEEKLY
	S2	S1	R1	R2
EUR/USD	1.0474	1.0600	1.1002	1.1175
EUR/GBP	0.8088	0.8232	0.8500	0.8627
EUR/CHF	1.0079	1.0204	1.0495	1.0702
EUR/CAD	1.3428	1.3561	1.3902	1.4097
EUR/JPY	134.89	136.90	140.0	142.90

You are getting used to it. The theme of the week will again be inflation. Eurostat will publish its first estimate of the consumer price index in the eurozone in April. The consensus of analysts anticipates a shift from 7.4% to 7.5% annually. We do not exclude that inflation will be much higher. In any case, pressure is mounting on the ECB to act. We would not be surprised if several Governing Council members convey a message of upcoming intervention, like de Guindos did a few days ago.

Below you will find publications and events that should have a major impact on currency price developments.

DAY	TIME	INDICATOR	WHAT TO EXPECT?
25/04	10:00	IFO Business Climate Index (April)	The consensus of analysts is predicting a rebound to 94.2 from 90.8 previously.
26/04	16:00	Conference Board Consumer Confidence Index (April)	Expected to decline to 106.0 from 107.2 in March.
28/04	14:30	First Quarter GDP Estimate	The consensus anticipates a sharp slowdown to 1.0% from 6.9% in the previous quarter.
26/04	09:00	First Quarter GDP	Low risk of recession (in the fourth quarter of 2021, GDP was contracting)
	11:00	Consumer Price Index (April)	New rise to 7.5% annually from 7.4% in March. This will seriously complicate the ECB's task.