Economic Situation
In June, prices in the United States fell by 0.4% for the month, a first since April 2020. The market immediately assumed that the Fed would stop raising rates, and the dollar finished the week lower.
But there is a wrinkle: this weekend, tensions between the United States and Iran intensified, and Brent crude rose above $90, its highest level since mid-June. In other words, the snapshot taken in June is already out of date.
This inflation figure, published on July 14, surprised everyone. Annual inflation fell from 4.2% to 3.5%, well below the 3.8% expected. The main driver is clear: energy dropped by 5.7% for the month, and gasoline by 9.7%.
As a result, bond yields plunged and the dollar hit its lowest level of the month.
Why did this drop happen? This figure reflects June, a calmer period thanks to a ceasefire agreement signed on June 17 between Washington and Tehran. The Strait of Hormuz had reopened, oil had fallen, and so had gasoline.
But that calm has ended. Last week, attacks resumed on both sides. On Saturday, Iran struck a major oil facility in Kuwait, and then announced that the ceasefire was no longer valid.
Traffic in the Strait of Hormuz collapsed, and on Monday morning Brent rose again above $90, about 20% higher than before the conflict began.
Should we ignore this June price drop? Not, because it isn’t explained solely by energy. The core inflation (which excludes energy and food) remained stable for the month and slowed on an annual basis, from 2.9% to 2.6%. Services excluding energy did not rise, and housing gained only 0.1%. A portion of this decline is therefore real, and that is what reassured markets about Fed rate expectations.
The issue, however, is the calendar. The next inflation figure, July’s (which will reflect the latest energy price rise), will be published only in mid-August, i.e., after the Fed meeting scheduled for July 28–29. The central bank will thus have to decide based on a June figure that the current oil situation has already rendered obsolete.
The market expects the Fed to hold rates steady (between 3.50% and 3.75%), but the Fed chair Kevin Warsh’s press conference promises to be tricky: it’s hard to rule out a rate hike when oil is rising, yet difficult to advocate one right after prices have fallen.
In short, this June inflation decline is partly a misleading effect tied to the temporary drop in oil. As long as the situation around the Hormuz Strait remains tense, inflation will stay elevated, and it seems premature to say the Fed will not raise rates again.
For the companies involved, this means that the euro/dollar exchange rate will stay volatile, oscillating between seeking safe havens and pricing in rate expectations.
In this context, it is better to systematically hedge against these fluctuations than to bet on a specific direction.
But there is a wrinkle: this weekend, tensions between the United States and Iran intensified, and Brent crude rose above $90, its highest level since mid-June. In other words, the snapshot taken in June is already out of date.
This inflation figure, published on July 14, surprised everyone. Annual inflation fell from 4.2% to 3.5%, well below the 3.8% expected. The main driver is clear: energy dropped by 5.7% for the month, and gasoline by 9.7%.
As a result, bond yields plunged and the dollar hit its lowest level of the month.
Why did this drop happen? This figure reflects June, a calmer period thanks to a ceasefire agreement signed on June 17 between Washington and Tehran. The Strait of Hormuz had reopened, oil had fallen, and so had gasoline.
But that calm has ended. Last week, attacks resumed on both sides. On Saturday, Iran struck a major oil facility in Kuwait, and then announced that the ceasefire was no longer valid.
Traffic in the Strait of Hormuz collapsed, and on Monday morning Brent rose again above $90, about 20% higher than before the conflict began.
Should we ignore this June price drop? Not, because it isn’t explained solely by energy. The core inflation (which excludes energy and food) remained stable for the month and slowed on an annual basis, from 2.9% to 2.6%. Services excluding energy did not rise, and housing gained only 0.1%. A portion of this decline is therefore real, and that is what reassured markets about Fed rate expectations.
The issue, however, is the calendar. The next inflation figure, July’s (which will reflect the latest energy price rise), will be published only in mid-August, i.e., after the Fed meeting scheduled for July 28–29. The central bank will thus have to decide based on a June figure that the current oil situation has already rendered obsolete.
The market expects the Fed to hold rates steady (between 3.50% and 3.75%), but the Fed chair Kevin Warsh’s press conference promises to be tricky: it’s hard to rule out a rate hike when oil is rising, yet difficult to advocate one right after prices have fallen.
In short, this June inflation decline is partly a misleading effect tied to the temporary drop in oil. As long as the situation around the Hormuz Strait remains tense, inflation will stay elevated, and it seems premature to say the Fed will not raise rates again.
For the companies involved, this means that the euro/dollar exchange rate will stay volatile, oscillating between seeking safe havens and pricing in rate expectations.
In this context, it is better to systematically hedge against these fluctuations than to bet on a specific direction.
Exchange Rates: The Technical Overview
On the foreign exchange market, two forces are currently at odds.On one side, geopolitical tensions push investors toward safe-haven assets. On the other, expectations about interest rates weigh on the dollar since the U.S. inflation data was released.
The euro against the dollar is around 1.1440, up slightly for the week, after hitting its best level since June 19. Thursday, the European Central Bank is expected to hold its rate at 2.25%, but what matters most is what Christine Lagarde will say at the press conference.
A rate hike in September is already widely anticipated by the markets, and if it confirms this idea, it would support the euro.
Conversely, if oil continues to rise sharply, investors will again favor the dollar as a safe haven. It is expected that the EUR/USD pair will move between 1.1325 and 1.1555 this week.
For the Canadian dollar, the Bank of Canada left its rate unchanged on Wednesday at 2.25%, for the sixth consecutive time, with a cautious tone. Its governor, Tiff Macklem, however warned that rate hikes could become possible again if the price of oil remained high for a sustained period.
An interesting detail: bets against the Canadian dollar are at their highest since late 2024. Yet, with oil above $90, many of these investors could be forced to buy back the currency, which could push the EUR/CAD pair lower.
The Japanese yen remains the most penalized currency in the current environment. It stands at 185.76 against the euro and about 162.35 against the dollar, near its historical lows. The Bank of Japan did raise its rate to 1.00% in June, but the gap with rates of other major central banks remains enormous, and no one expects another hike before autumn. Japan’s June inflation, published on Friday, will reveal whether this normalization can accelerate.
The Swiss franc continues to play its usual stabilizing role. The euro against the franc remains around 0.9230, within the 0.92 to 0.93 range that analysts expect it to trade in the coming months.
On the British side, the euro against the pound is around 0.8502. Britain’s inflation data on Wednesday, expected to ease to 2.7%, will be decisive for the Bank of England’s July 30 decision, with the rate currently at 3.75%. A reassuring inflation figure would confirm the view that the bank will hold its rates and keep the pair in its current range.
| WEEKLY SUPPORTS | WEEKLY RESISTANCES | |||
| S2 | S1 | R1 | R2 | |
| EUR/USD | 1.1215 | 1.1325 | 1.1555 | 1.1670 |
| EUR/GBP | 0.8330 | 0.8415 | 0.8590 | 0.8675 |
| EUR/CHF | 0.9045 | 0.9140 | 0.9320 | 0.9415 |
| EUR/CAD | 1.5715 | 1.5875 | 1.6195 | 1.6355 |
| EUR/JPY | 182.05 | 183.90 | 187.60 | 189.45 |
The weekly supports and resistances shown below indicate the lower and upper bounds within which prices are expected to move during the coming week.
The information presented in this publication is provided for purely informational purposes and does not constitute investment advice, an offer to sell, or a solicitation to buy, and should in no way be used as a basis or considered as an inducement to engage in any investment activity.
Mondial Change is a French financial institution, founded in 2015, specializing in the management of international payments and foreign exchange risk.
Mondial Change also supports numerous players in the tourism sector, including travel agencies, group organizers, tour operators, and inbound operators…
www.mondialchange.com
Contact: [email protected]
Mondial Change also supports numerous players in the tourism sector, including travel agencies, group organizers, tour operators, and inbound operators…
www.mondialchange.com
Contact: [email protected]
