Waiting 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 considered as an incentive to engage in any investment. The macro point Patience is required. Meetings of the U.S. Federal Reserve (Fed) and the European Central Bank (ECB) are not scheduled until the end of the month. It's now the turn of the second-tier banks with the Bank of Israel (Monday) and the Bank of Canada (Wednesday) this week. The consensus among traders predicts a 25 basis point increase in Canada's interest rate, which is not expected to cause significant fluctuations in the EUR/CAD. Volatility is low in major currency pairs but is present for emerging currencies. The Russian ruble continues to fall and the slide also affects a large part of Asian currencies (against the U.S. dollar). There wasn't much in terms of macroeconomic data. There were both positive and negative aspects in U.S. statistics. The ISM manufacturing index fell to a three-year low in June. This is bad but was anticipated. Meanwhile, inflationary pressures are reducing but still remain too high. The core PCE index (which is the Fed's preferred measure of inflation) reached 4.6% year-on-year in May (there is a significant time lag). It’s better than in April (4.7% year-on-year). But it's still far from the 2% target. It is becoming clear that the economy is not sufficiently constrained, particularly demand, to allow for a rapid decline in inflation. Therefore, interest rates need to be increased. QED. The Reserve Bank of Australia (RBA) was the only major central bank meeting last week. As expected, it kept its rate unchanged at 4.10%. Traders anticipate at least one more rate hike next September to ensure inflation declines further. But everything suggests that the terminal rate is near. The initial reaction of the Australian dollar was rather poor: it fell against both the U.S. dollar and the euro. Since the beginning of the year, the EUR/AUD pair has increased by 4.5%. In Japan, the situation is improving. This is important as the archipelago is often a good barometer of the state of international trade (the Japanese economy is heavily export-oriented). The Tankan survey (which is somewhat equivalent to the European PMIs) is conducted on a quarterly basis and shows that optimism among small and large manufacturing sector players is improving significantly. The main index rose from 1 to 5 in one quarter and forecasts (which are arguably more important) also jumped, from 3 to 9. This improvement is partially explained by the decrease in raw material prices (although hot spots persist here and there) and by the easing of tensions in production chains (there are now no difficulties in accessing inputs). Technical point On the foreign exchange market, there was little activity last week. This can be explained by the absence of significant macroeconomic statistics and the US national holiday which led to lower trading volumes. Trends remain unchanged on the main currency pairs. The EUR/USD remains in a consolidation phase between 1.08 and 1.10. The trend is still bearish for the EUR/CHF with a target of 0.96 in the medium term. Conversely, the upward trend continues for the EUR/JPY, although caution is advised. The sharp depreciation of the JPY against both the euro and the US dollar, in a relatively short period, is not to the liking of the Japanese authorities who might decide to intervene in the FX market, as they have done in the past (the last time was in September 2022). On emerging currencies, volatility was, however, higher. This is not surprising. There are generally more erratic movements in emerging currencies. Attention was focused particularly on the Russian ruble, which continues its descent into hell. The ruble exceeded for the first time since March 28, 2022, the level of 93 rubles to the dollar. The decline is also notable against the euro (a fifteen-month low at 101 rubles to the euro). For many quarters, the Russian central bank massively intervened in the currency market to support the ruble in the context of the war against Ukraine. This is clearly no longer the case. The ruble is no longer a manipulated currency. In the coming weeks, attention should be paid to the Chinese yuan. Recent history teaches us that there can often be a lot of volatility in the Chinese currency during the summer. In recent sessions, Chinese public banks have massively intervened in both onshore and offshore markets to limit the yuan's depreciation. This does not call into question Beijing's desire to have a weak currency to support the strategic export sector. However, it is clear that the rapid depreciation of the currency in recent weeks was poorly perceived. China likes fine-tuning when it comes to exchange rates, as it reminded once again with the recent interventions. Supports and resistances displayed below respectively indicate the lows and highs within which prices should evolve during the week. Announcements to follow It’s another transitional week for the currency market. The publication of the Consumer Price Index in the United States for June (first estimate) is expected to have low importance. The direction of US monetary policy is known in the short term. There will be two more rate hikes, one of which will be this month. The minutes of the last FOMC meeting of the Federal Reserve were clear on this subject. News at the central bank level is expanding. The Bank of Israel (meeting this afternoon) is expected to pause monetary policy, as the Fed did in June. The key rate is maintained at 4.75% - a high since the financial crisis of 2007-2008. However, everything suggests that new hikes could occur as early as next September since the level of inflation is high (inflation close to 5% while the central bank target range is between 1% and 3%). The Bank of Canada (BoC) has also resumed the path of rate hikes after a (very) temporary pause. Last June, the central bank caught the market off guard by raising its key rate by 25 basis points. Analysts do not want to make the same mistake. The consensus expects a further rate hike of 25 basis points to 5%. This is already priced in. It should not cause significant ripples in the Canadian dollar unless the BoC surprises us again. The week will close with the producer prices in the United States for June which should confirm the decline in inflationary pressures at the input level. It’s good news. Below you will find the publications and events that should have a major impact on the evolution of currency rates.DayTimeCountryIndicatorWhat to expect?07/11/202308:00GERConsumer Price Index (June)Previous at 0.3% month-over-month.07/12/202314:30USAConsumer Price Index (June)Previous at 4.0% year-over-year.07/12/202316:00CANCentral Bank meetingRate hike of 25 basis points to 5%.07/13/202314:30USAProducer Price Index (June)Previous at -0.3% month-over-month.