Strike Hard The information presented in this publication is provided solely for informational purposes and does not constitute investment advice, an offer to sell, or a solicitation to buy, and should not be relied upon as a basis or considered as an inducement to engage in any investment. The macro point Despite numerous economic risks and surprise decisions by several central banks, volatility remains abnormally low in the foreign exchange market. This does not only concern currencies. A similar phenomenon can be observed for other asset classes. It is never good news when volatility is so low. This means that the market has not factored in risk scenarios and, if they occur, it can obviously lead to significant price discrepancies. Caution is advised as summer approaches. It was supposed to be a dull week. In the end, it was marked by surprises, largely due to central banks. Of the four central bank meetings on the agenda, two exceeded expectations, one disappointed, and another made a decision in line with the consensus. Unsurprisingly, the Swiss National Bank (SNB) did not catch the market off guard. As expected, it raised its key rate by 25 basis points to 1.75%. This is the fifth consecutive rate hike. More rate hikes are in sight, probably as early as next fall, to counter inflationary pressures. Comparatively, they are less significant in the Confederation than in other European countries, but the SNB wants to avoid at all costs the mistake made by some of its peers, namely delaying in raising key rates. Those who did paid dearly. This is notably the case with the Bank of England (BoE) and Norges Bank (Norwegian central bank). Last November, Norges Bank had reduced the size of its rate hike to 25 basis points, then paused last January. Last week, it was forced to reaffirm its commitment to fight inflation by increasing its key rate more significantly than expected, by 50 basis points to 3.75%. This is the eleventh rate hike in this cycle. The Bank of England is facing a similar situation. The latest statistics, particularly those on core inflation (closely watched by central bankers), did not leave the institution with much choice. Inflationary pressures are strengthening and are more durable. There is not yet any unanchoring of inflation expectations. But the risk is real. Therefore, it was necessary to act decisively last week, hence the 50-basis-point hike in the cost of money when the consensus was for 25 basis points. In both cases, it is clear that further rate hikes will occur. The money market anticipates that the terminal rate across the Channel should reach 6% this year (after at least one more 25-basis-point rate hike next August). The only disappointment came from the central bank of Turkey. It ended its inconsistent monetary policy of having low interest rates while the country faces hyperinflation. It raised the main policy rate, but by less than the market expected. The increase was 650 basis points (which is a lot, however) to 15%. This is the first hike since March 2021, following ten consecutive rate cuts (which significantly increased inflationary pressures in the country). The foreign exchange market did not hide its disappointment, and the Turkish lira (TRY) plummeted heavily during last Thursday's session. Even though it is obviously too early to know how inflation will truly evolve in the coming months, it is clear that the monetary tightening cycle is far from over. Central banks are well aware that by significantly raising rates, they will hamper the economy (this is already underway). But they are making the rational choice (which can be challenged) that it is better to have a temporarily sluggish economy than a persistently high inflation, sometimes around 4-5% over a year. Fortunately, there were also some glimmers of hope regarding the economic trajectory last week. Inflation (of course, this remains the number one focus) is still too high in the Eurozone, but it is beginning to subside, and above all, inflationary pressures are no longer as widespread as before. Last October, nearly 80% of the components used to measure changes in the consumer price index were rising. It was concerning. Last May (latest available data), this was the case for only 30% of the components. We are certainly far from having won the battle against inflation, but there are some encouraging signals that we absolutely wanted to share with you. Technical point In the forex market, the favorable dynamics for the euro seem to be waning. The week ending June 18 marked the best weekly performance of the year for EUR/USD. But the single currency lacks catalysts to go further. For example, new U.S. statistics confirming a significant economic slowdown would be needed. Meanwhile, it is likely that the pair will trade in a narrow range in the short term. The poor performance of the Swedish krona also continues. The currency hit a historic low against the euro last week. Its previous record dates back to 2009 (level of 11.78). It is likely that the depreciation will not stop anytime soon. When market confidence is broken, it is very difficult to go back. Finally, the collapse of the Japanese yen accelerated again last week. We are reaching worrisome levels of decline that might prompt Japanese authorities to intervene in the forex market (EUR/JPY around 156). This is a risk to take into consideration this summer. The supports and resistances shown below indicate the low and high points within which the rates should move during the week.Weekly SupportsWeekly ResistancesS2S1R1R2EUR/USD1.07221.08101.10991.1145EUR/GBP0.83200.84000.88900.9123EUR/CHF0.95150.96990.99461.0050EUR/CAD1.42301.43221.45901.4666EUR/JPY148.90150.34158.99160.00 Announcements to follow Barring any last-minute surprises (and it happened last week), there should not be many market movers this week in the forex market. Volatility continues to be abnormally low. This is not a phenomenon affecting only currencies. It is also observed in the bond and equity markets. It is abnormal, especially given the many risk factors looming over the global economy. Such a market anomaly can persist for a long time. You just need to be aware that it exists (and therefore consider scenarios to protect your assets in view of a potential market reversal). Marginally, attention will be paid to the U.S. core PCE index for May. It is the U.S. Federal Reserve's preferred measure of inflation. But it should not have much effect on the dollar pairs. Below are the publications and events that should have a major impact on the evolution of currency rates.DayTimeCountryIndicatorWhat to expect?06/26/202310:00GERIFO Business Climate Index (June)Previous at 91.7.06/27/202316:00USAConference Board Consumer Confidence (June)Increase of 25 basis points.06/30/202308:00UKQ1 GDPPrevious at 0.2% year-on-year.06/30/202314:30USACore PCE Index (May)Previous at 0.4% month-over-month change.