Summer is here

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The macro point

Summer is Here Macro Insight On the economic front, there has been a lot of good news in Europe in recent days. In Germany, the IFO business climate index for May – closely watched by foreign exchange market participants – reached a two-year high. The index came in at 99.2 compared to 96.6 in April. Expectations for the business climate in the coming six months are also on the rise – at their highest level since January 2011. In France, the positive momentum is similar to that observed in Germany. The business climate index published by INSEE for May is above its long-term average, at 108, jumping nearly 12.3 points in one month! The level of activity remains high in the manufacturing sector, as in recent months. The real good news concerns the acceleration of activity in services, which simply reflects the economic reopening phenomenon at work. Other positive points, consumer confidence is high and the fear of unemployment is finally decreasing. This strong rebound in optimism and activity is not a surprise. We noted the same phenomenon in May and June 2020 following the lifting of the global lockdown. Thanks to the acceleration of vaccination (the EU should have vaccinated nearly 70% of its population by mid-July), we can not only hope for a roughly normal summer in terms of economic activity but also a recovery in September that is not marked by a resurgence of the pandemic, as was the case last year. Even though it is too early to say that the page of the pandemic has been definitively turned (just look at the spread of the Indian variant across the Channel to judge), everything suggests that the worst is finally behind us. From an economic perspective, this means that the rebound that began in April/May in most developed economies should persist at least until the end of the year. There are very few clouds on the horizon. The often-discussed issue of the risk of business bankruptcies does not even seem to be on the table. Thanks to state-guaranteed loans (PGE), French companies have massively managed to overcome liquidity issues related to the crisis. Moreover, only 5% of companies benefiting from this scheme claim to have difficulties in repaying loans (Source: Rexecode) – which demonstrates the robustness of French companies and their ability to rebound.

Technical point

In the foreign exchange market, volatility remains desperately low, as has been the case in recent months. Risk appetite continues to favor the euro, which shows solid monthly performance against the Japanese yen (+1.70%). Last week, the EUR/JPY pair reached a two-year high at 133.49. Given the current climate in the currency market, the next target for the pair is now at 134.74. This is a medium-term target. The euro also continued its march against the US dollar, but to a lesser extent in recent sessions. A test of the resistance at 1.2303 in the coming days is possible. The coming weeks, marked by a myriad of very positive statistics, should largely favor risky currencies (like the euro) but also commodity currencies (such as the Australian dollar and the Canadian dollar). The supports and resistances displayed below indicate the low and high points within which prices should trade during the week.

	SUPPORTS	WEEKLY	RESISTANCES	WEEKLY
	S2	S1	R1	R2
EUR/USD	1.1946	1.2065	1.2242	1.2303
EUR/GBP	0.8345	0.8488	0.8673	0.8734
EUR/CHF	1.0774	1.080	1.1062	1.1158
EUR/CAD	1.4545	1.4621	1.4893	1.5067
EUR/JPY	131.97	132.35	134.00	134.74

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Announcements to follow

This week, all the attention of foreign exchange market participants will be focused on the US economy, just before the Federal Reserve meeting later in June. Unsurprisingly, indicators concerning manufacturing activity and services activity in May are expected to remain at very high levels – similar to what is currently happening in Europe. The good statistics expected regarding the labor market (ADP at 545k and NFP at 621k in May according to consensus) should also continue to fuel risk appetite in the foreign exchange market. With the gradual end of exceptional unemployment benefits in several US states (more than 20 to date), we expect a very sharp decline in unemployment when the June figures are released at the beginning of July. Once again, everything indicates that economic improvement will continue. Below you will find publications and events that should have a major impact on exchange rate movements.

DAY	TIME	INDICATOR	WHAT TO EXPECT?
01/06	09:50	Manufacturing PMI (May)	New estimate expected at 66.4 (up).
	10:30	Manufacturing PMI (May)	Previous at 66.1.
	16:00	ISM Manufacturing PMI (May)	Stable at 60.8 against 60.7 previously.
03/06	14:15	ADP Non-Farm Employment Change (May)	Expected at 545k against 742k in April.
	16:00	ISM Non-Manufacturing PMI (May)	Expected to rise to 62.9 reflecting the economic reopening process of services.
04/06	14:30	US Employment Report (May)	An excellent result according to the consensus with an unemployment rate dropping to 5.9% (against 6.1% previously) and 621,000 job creations.

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