Economic Situation
The U.S. Federal Reserve (the Fed) and the European Central Bank (the ECB) are expected to move on the same dates: nothing at the end of October, followed by a rise in their interest rates in December.
Since this scenario is already priced in, it will no longer differentiate the two currencies before January, unless a surprise, and it could come from the September U.S. inflation, published on Wednesday. In the background, energy prices remain the real risk.
American expectations moved quickly. Barely had the U.S. rate been set in the 3.75% to 4.00% range, investors priced in, by nearly 75% on September 29, a further increase on October 28. They now believe it with less than 20% probability. John Williams, one of the Fed’s leaders, ruled out any rush, and the country created only 29,000 jobs in September. The move is deferred, not canceled: by the December meeting, the probability of a hike is judged likely at 84%.
The ECB should follow the same path. Reuters polled 73 economists on October 8: 70 see it keeping its rate at 2.50% on October 29, and 64 expect it to raise in December. Again, the scenario is known, thus already priced in. Only a revision would move the markets: some capital would then flow toward the currency with the fastest rising yields.
The euro has fallen for five weeks in a row, the latest week a soft one, and it was worth 1.1210 dollars this morning. The risk, in our view, remains oil. Europe buys it abroad and settles in dollars, while the United States sells more than it consumes: a price spike weighs only on the former.
Or Riyadh was attacked this weekend, and tankers were targeted near the Strait of Hormuz, which keeps the pressure. Winter budgets are therefore built on fuel that remains expensive and on dollar-denominated services that will not become cheap again.
Since this scenario is already priced in, it will no longer differentiate the two currencies before January, unless a surprise, and it could come from the September U.S. inflation, published on Wednesday. In the background, energy prices remain the real risk.
American expectations moved quickly. Barely had the U.S. rate been set in the 3.75% to 4.00% range, investors priced in, by nearly 75% on September 29, a further increase on October 28. They now believe it with less than 20% probability. John Williams, one of the Fed’s leaders, ruled out any rush, and the country created only 29,000 jobs in September. The move is deferred, not canceled: by the December meeting, the probability of a hike is judged likely at 84%.
The ECB should follow the same path. Reuters polled 73 economists on October 8: 70 see it keeping its rate at 2.50% on October 29, and 64 expect it to raise in December. Again, the scenario is known, thus already priced in. Only a revision would move the markets: some capital would then flow toward the currency with the fastest rising yields.
The euro has fallen for five weeks in a row, the latest week a soft one, and it was worth 1.1210 dollars this morning. The risk, in our view, remains oil. Europe buys it abroad and settles in dollars, while the United States sells more than it consumes: a price spike weighs only on the former.
Or Riyadh was attacked this weekend, and tankers were targeted near the Strait of Hormuz, which keeps the pressure. Winter budgets are therefore built on fuel that remains expensive and on dollar-denominated services that will not become cheap again.
Exchange Rates: The Technical View
Bearish bets against the euro remained buoyant last week : short positions held by speculators weighed 99,300 contracts as of Tuesday, October 6, up 36,000 over seven days.A U.S. inflation figure weaker than expected would force them to buy back euros. In our view, such purchases would push the European currency toward 1.13 dollars quickly, while a fall toward 1.11 would occur more slowly.
The U.S., Canadian and Japanese debt markets are closed this Monday: there are therefore few buyers and sellers. Oil, however, reacted to the news. Brent opened at $105.48, before retreating toward $103.90 when the United States hinted that Russian diesel could circulate. Currencies remained almost unmoved: 1.5977 Canadian dollars per euro this morning, 177.27 yen, the pound at 0.8463 and the Swiss franc at 0.9299. These levels will only be taken for granted after Tuesday’s session.
Thailand, meanwhile, is quietly firming ahead of winter. The baht has strengthened for a month: it took 38.31 bahts to buy one euro on September 9, versus 37.57 at the ECB reference rate on October 9, i.e., 1.9% less. A transaction priced by a Bangkok or Phuket intermediary at the back-to-school rate thus sees its margin shrink.
| WEEKLY SUPPORTS | WEEKLY RESISTANCES | |||
| S2 | S1 | R1 | R2 | |
| EUR/USD | 1.0986 | 1.1098 | 1.1322 | 1.1434 |
| EUR/GBP | 0.8294 | 0.8378 | 0.8548 | 0.8632 |
| EUR/CHF | 0.9113 | 0.9206 | 0.9392 | 0.9485 |
| EUR/CAD | 1.5657 | 1.5817 | 1.6137 | 1.6297 |
| EUR/JPY | 173.72 | 175.50 | 179.04 | 180.82 |
The supports and resistances shown below indicate respectively the lower and upper points within which prices are expected to move during the week.
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 in no case be used as a basis or be considered as an incentive to engage in any investment.
Mondial Change is a French financial institution, founded in 2015, specializing in the management of international payments and exchange rate risk.
Mondial Change supports many players in tourism, travel agencies, group organizers, tour operators, incoming operators…
www.mondialchange.com
Contact : [email protected]
Mondial Change supports many players in tourism, travel agencies, group organizers, tour operators, incoming operators…
www.mondialchange.com
Contact : [email protected]
