The Good and the Bad 2 The information presented in this publication is provided solely for informational purposes and does not constitute investment advice, a sales offer, or a solicitation to buy, and must not, in any case, serve as a basis or be considered an encouragement to engage in any investment. The macro point We have good news and bad news. Which would you like to start with? The good news. Finally, the peak of inflation may have been reached. It's a sigh of relief. In the United States, the core PCE index (the Federal Reserve's preferred measure of inflation) has fallen by 60 basis points from its high of 5.3% in February. This is the third indicator in less than a week that seems to indicate a decline in inflation (inflation expectations measured by the University of Michigan in the United States have been revised downwards, and the consumer price index in Germany in June came in lower than expected, at 7.6% against a consensus of 8.0%). Of course, it will likely take several quarters (or more) for inflation to return to more sustainable levels, around 3-4%. A return close to 2% (which prevailed before the pandemic) is a very distant horizon, in our opinion. But these early signals are encouraging for both businesses and consumers who are finding it increasingly difficult to manage their expenses and for investors in this unprecedented situation (for the younger among us, one must sometimes go back to our grandparents to experience such levels of price increases). However, this should not affect monetary policy in the short term. All major global central banks (except for the central banks of China and Japan) will continue to aggressively tighten their monetary policy to further alleviate inflationary pressures. In the eurozone, the president of the European Central Bank, Christine Lagarde, has indicated a wish to raise the key interest rate by 25 basis points in July. But she faces internal opposition. The hawks (those wishing for a faster rate increase, similar to the process begun in the United States) have publicly advocated for a 50 basis point increase (this was specifically the case of Martins Kazaks, president of the Latvian central bank). We also have bad news to share with you. After inflation, which caused a stir in the financial markets, recession is now the new fear. The risk of recession is low in the eurozone. Stagnant growth (somewhat similar to what prevailed before COVID) is expected to be the norm. However, the signals are negative on the American side, and many analysts anticipate a recession in the United States in 2023. Unsurprisingly, the US dollar (USD) is the big winner in this context. Last week, both the euro and the British pound reached a two-week low against the USD. We are witnessing a well-known phenomenon in the currency market: flight to quality. When investors fear a dark economic scenario, they recycle their capital into the US market which acts as a safe haven. This has the direct effect of supporting the exchange rate of the greenback. Paradoxically, the shift to the US market occurs even when it is the US economy that is struggling. Several factors reinforce the risk of recession across the Atlantic: the weakening of the real estate market (May's figures are very poor), the significant drop in valuations in both public and private sectors, inflation spreading across all sectors of the economy, and the decline in activity in the services sector as measured by the PMI indicator. However, we doubt that a recession will occur in the United States this year. The US economy is starting from a very favorable position: full employment, high GDP growth level (unlike the eurozone), and real-time statistics confirming that growth will slow down but that the risk of recession is low at this stage (the Atlanta Federal Reserve's GDPNow indicator, which, as the name suggests, estimates economic activity evolution based on published indicators, is at 0.3% in the second quarter compared to the first). We expect a very clear economic slowdown in the United States at the beginning of 2023 (which could challenge the Federal Reserve's interest rate hike policy). But we continue to believe that the risk of a recession is low at this stage. Traders, investors, and analysts love to scare themselves. On the foreign exchange market, the euro continues its downward trajectory against the US dollar. Weekly variations show a decline of 1.47%. In the short term, the trendline close to 1.0640 continues to exert downward pressure on the pair. The next technical levels to consider are located at 1.0382 (low of June 30), 1.0358 (low of June 15), and 1.0348 (low of May 13). In the long term, as long as the EUR/USD pair has not crossed the 1.1106 mark (which corresponds to the 200-day moving average), it's hard to see how the downward trend could be reversed. Additionally, the fundamentals are rather in favor of a continued decline in the single currency (risk aversion). The supports and resistances displayed below respectively indicate the low and high points within which the rates should evolve during the week.SUPPORTSWEEKLYRESISTANCES WEEKLY S2S1R1R2EUR/USD1.03581.03821.0641.0811EUR/GBP0.83690.84900.87460.8890EUR/CHF0.96000.98231.01291.0250EUR/CAD1.32291.33381.36011.3740EUR/JPY138.24149.13143.62146.18The American employment will be the main focus this week on the currency market. Due to the US Independence Day on July 4th, the ADP private employment report will be exceptionally published on Thursday instead of Wednesday. Moreover, ADP plans not to publish any report for July (normally published in August) in order to change its methodology. As you may have guessed, it's probably not worth paying too much attention to the figure released this Thursday. However, traders will closely monitor the official report from the Department of Labor on Friday. In June (which corresponds to the covered period), several large American companies announced significant layoffs. Nevertheless, this should not, at this stage, challenge the overall dynamic. The unemployment rate is expected to remain stable at 3.6% (which corresponds to full employment). Job creation should also be well-oriented (250,000 according to consensus). Unless there's a significant deviation from consensus estimates, the report should not cause a resurgence of volatility on currencies. Below you will find the publications and events that should have a major impact on currency rate developments.DAYTIMECOUNTRYINDICATORWHAT TO EXPECT?07/0510:30PMI Indicators (June)Second estimate hence marginal impact on exchange rates.07/0616:00JOLTS Report on New Job Openings (May)Stable at 11.400M.07/0714:15ADP Non-Farm Job Creation (June)Analyst consensus predicts 300,000 job creations in June compared to 128,000 in May.07/0814:30US Department of Labor Employment Report (June)The dynamic remains positive: stable unemployment rate expected at 3.6% and job creation at 250,000 (compared to 390,000 in May).