The Glass Half Full 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 taken as an incentive to engage in any investment. The macro point Last week brought its share of bad news: resurgence of the Covid pandemic in China delaying the prospect of a full reopening of the country (several major cities are under strict lockdown), contraction of the ISM manufacturing index in the United States for the first time since May 2020, heightening fears of a recession next year, record rise in prices in UK stores, and collapse of international trade in October (export figures published by Japan and South Korea are disastrous). However, there was some good news: the US Federal Reserve (Fed) is considering slowing the pace of interest rate hikes. In a notable speech last Wednesday, Fed Chairman J. Powell suggested that the institution might soon abandon 75 basis point rate hikes (although a hike of this magnitude remains likely in mid-December) to adopt smaller hikes (50 basis points). Why is a 25 basis point difference significant? It indicates that the Fed's battle against high inflation is bearing fruit. The figures prove it. The peak of inflation was reached in the United States last summer. Since then, inflation has been receding. The PCE index (for Personal Consumption Expenditures) came in at 6% year-on-year in October compared to 6.3% in September last week. It is the Fed’s favorite measure of inflation because it is based on a broader aggregate of economic data. Excluding volatile items (food and energy), the indicator is also down to 5% year-on-year compared to 5.2% the previous month. Even if inflation is declining, there is still a long way to go to return to a tolerable level (2%). Moreover, surges in inflation cannot be ruled out due to exogenous factors (for example, in case of a rebound in Chinese demand or a decrease in oil production, which would drive barrel prices up again). Powell also called for caution regarding inflation developments in the coming months. We will have to wait for the FOMC meeting (the body responsible for setting interest rates in the United States) on December 14 for a more precise diagnosis concerning the US economy. It will be on this occasion that the Fed's macroeconomic projections for the next two years will be updated. Nothing to report in the eurozone, however, last week. The President of the European Central Bank (ECB), Christine Lagarde, reaffirmed the need to tighten monetary policy further without providing more details on the pace of rate hikes or duration. She also indicated that inflation risks being very volatile in the coming months, especially as we enter winter (which could again push energy prices up if weather conditions worsen). Caution is required. The good news is that a blackout in Europe is now excluded (to be precise, it is a complete collapse of the electrical system). European countries have managed the feat of diversifying their supplies in record time to no longer depend on Russia. New liquefied natural gas (LNG) suppliers have emerged, such as Mozambique (main LNG reserves in Africa) and Australia, which usually exported only to Northern Asia (particularly Japan). However, this comes at a price. The cost of LNG has been climbing since last spring. At Mondial Change, we expect the ECB to increase its key rate by 50 basis points on December 15. A minority of analysts are betting on a larger increase (75 basis points). On this occasion, like the Fed, the institution will update its economic forecasts for 2023 and 2024. It will be interesting to know if the ECB now anticipates a recession in the eurozone next year. It is the market consensus. All recent indicators confirm this risk (contraction of the manufacturing sector in France in November, drop in consumer spending by 5.9% year-on-year in October in France, collapse of retail sales by 6.6% over the same period in Germany, etc.). In the currency market, the euro managed to cross the 1.0480-1.0500 range last week. The upward movement rests on little (fundamentals do not favor the euro). This means for us that the increase is not sustainable in the medium term. In the short term, however, the euro could still rise slightly. The resistance at 1.0588 will be watched in the coming sessions. The euro also managed to regain some ground against the Swiss franc (+0.33% weekly variation). But the underlying trend remains bearish as long as the EUR/CHF pair does not cross the parity threshold. Finally, we have observed for a few weeks a repositioning in favor of the British pound (which explains the ongoing catch-up against the euro over the past month). However, we doubt that this can be lasting. The UK's economic and financial problems (which are of a completely different magnitude than Brexit) are likely to weigh on the British currency in 2023. The supports and resistances displayed below indicate the respective lows and highs within which prices should evolve during the week.SUPPORTSWEEKLYRESISTANCESWEEKLYS2S1R1R2EUR/USD1.01841.03331.05881.0693EUR/GBP0.83370.84450.86420.8723EUR/CHF0.97410.97970.99441.0101EUR/CAD1.37871.39571.42301.4334EUR/JPY138.30140.10144.35146.79The week beginning will be unsurprising on the macroeconomic front. It is a transitional week before major central bank meetings on December 14 and 15. Unsurprisingly, the Bank of Canada (BoC) should maintain its hawkish bias (in favor of tightening monetary policy). A large majority of analysts anticipate a 50 basis point increase in the key rate. Recent macroeconomic indicators (notably those concerning employment) are quite good. They indicate that the central bank still has sufficient latitude to raise borrowing costs if it deems it necessary to bring inflation down. However, this outlook is unlikely to help the Canadian dollar. The currency remains penalized by a generally declining energy price context and especially the price of oil (a drop in WTI crude oil by 8% on a monthly variation). Below are the publications and events that should have a major impact on currency price movements.DAYTIMECOUNTRYINDICATORWHAT TO EXPECT?12/0516:00ISM Non-Manufacturing Index (November)Previous 54.4.12/0716:00Central Bank Meeting50 basis point rate hike.12/0914:30Producer Price Index (November)Previous 0.2% compared to October.