Tapering

The information presented in this publication is communicated to you for informational purposes only and does not constitute investment advice, a sales offer, or a solicitation to purchase, and should not be used as a basis or considered as an incentive to engage in any investment.

The macro point

“Tapering”
The macro point
The pandemic is experiencing a surge in several Asian countries (India and Japan). But the good news is that the restriction measures implemented in the EU seem to be bearing fruit. Several European countries have planned to begin the process of economic reopening starting this week, notably to allow the arrival of foreign tourists. In the case of France, the reopening will take place from mid-May and will be very gradual. As was the case in the third quarter of last year, a strong rebound in consumption and economic growth is expected over the summer period.
On the political front, Germany is experiencing a small upheaval five months ahead of the general elections in September. The CDU, the party of Chancellor A. Merkel, is losing ground in polls following the nomination of its candidate, A. Laschet. The erosion of power, as well as the lack of renewal of its elites, are the two main factors explaining the decline in the party’s public opinion. Conversely, the German Green Party is standing out and is likely to play a crucial role in the next ruling coalition. It is likely that its candidate, A. Baerbock, will obtain the position of Vice-Chancellor, which could lead to several major changes in economic terms. The German Greens’ program notably includes 500 billion euros in public investments and greater flexibility in the fiscal framework (the famous 3% deficit target). A real revolution for Germany! However, there are still several months before the election, so anything can still happen. What is certain at this stage is that the Merkel era is coming to an end.

Technical point

On the foreign exchange market, volatility remains very contained despite the European Central Bank (ECB) meeting on Thursday. Unsurprisingly, the issuing institution maintained its monetary policy unchanged. The 1850 billion euros envelope allocated to securities purchases under its quantitative easing program was not modified. Moreover, the deposit facility rate (the rate at which it lends to commercial banks) remains at -0.5%. By its June 10 meeting, new questions might arise about the evolution of monetary policy in the event of a strong economic recovery. For now, the pair remains in positive territory in weekly variation (+0.30%), still anchored around the psychological threshold of 1.20. We expect lateral movement near this price zone in the short term, lacking a catalyst. Note that the Canadian dollar did not significantly benefit from the Bank of Canada's (BoC) decision to reduce its asset purchase program from 4 billion CAD per week to 3 billion CAD. The Canadian dollar gained only +0.10% against the euro over the past week. This decision by the central bank, however, indicates that the Canadian economy is recovering more rapidly than expected. Moreover, the BoC has revised its growth forecasts upward. After an economic contraction of 2.5% last year, the central bank forecasts growth of 6.75% this year and 4% in 2022. If these forecasts prove correct, Canada should be the first major developed economy to massively withdraw its ultra-accommodative measures implemented at the start of the crisis. The supports and resistances displayed below respectively indicate the lows and highs within which the courses should evolve during the week.

	SUPPORTS	WEEKLY	RESISTANCES	WEEKLY
	S2	S1	R1	R2
EUR/USD	1.1702	1.1826	1.2197	1.2230
EUR/GBP	0.8513	0.8593	0.8752	0.8831
EUR/CHF	1.0843	1.0932	1.1198	1.1234
EUR/CAD	1.4622	1.4830	1.5126	1.5274
EUR/JPY	127.37	128.48	131.19	132.09

For personalized advice on currency trends and covers, contact our trading room:

Announcements to follow

This week, traders will focus mainly on the American central bank (Fed) meeting. This meeting comes at a crucial time as the market has been agitated for a few weeks concerning the fear of a "tapering" (slowing the pace of asset purchases). Although the American economy has already returned to its pre-crisis level, the hypothesis of "tapering," which could create a return of risk aversion in forex, seems highly unlikely at this stage. Given the federal state's financing needs and the pockets of fragility that persist in the economy (particularly among the most disadvantaged populations), the Fed will have to maintain an accommodative monetary policy in the long term. At this stage, a slowdown in asset purchases would be premature. Moreover, J. Powell has repeatedly indicated in his recent interventions that the Fed remains on unchanged monetary policy. This would be a surprising reversal. On the European side, the German business climate IFO index will be the main publication of the week. The consensus expects a slight decline to 93.2 in April linked to the strengthening of restrictions to deal with the pandemic. A similar decline was seen with the business climate index in France last week. Finally, the Italian council president, Mario Draghi, is expected to officially present an ambitious 221 billion euro recovery plan in the coming days to radically restructure the Italian economy. Among the main measures: massive investments in high-speed lines and green energy. Below are the publications and events that should have a major impact on the evolution of currency prices.

DAY	TIME	INDICATOR	EXPECTATION
26/04	10:00	IFO Business Climate Index (April)	Decline to 93.2 against 96.6 previously
27/04	16:00	Conference Board Consumer Confidence (April)	Still positive orientation with an expected figure of 112.3 in April.
28/04	20:00	Central bank meeting	No changes expected. Questions regarding potential "tapering" (reduction of asset purchases) are premature according to us
29/04	14:30	Q1 GDP	First estimate expected at 6.3% against 4.3% in Q4 2020.
30/04	08:00	Q1 GDP	Previous figure: 0.3%.

Did you like this content? Share it!