Early signs of stabilization weaken the EUR

Last Thursday's ECB meeting was undoubtedly a turning point, but not the only one. Last Wednesday, we saw the S&P 500 rebound strongly, approaching its August lows around 1850. The RMB has been stable for 14 days at around 6,57 RMB per USD, thanks primarily to two factors: 1) the perception that a severe recession in China can be avoided thanks to the rebound in the services sector, and 2) the perception that Chinese authorities currently have no intention of devaluing their currency. Oil has also helped, remaining above the key support level of $28 per barrel in the case of WTI.

The currency reaction was as expected. 1) Recovery of emerging market currencies and those more closely linked to commodity prices: the RUB recovered 8% in two days, and the AUD, CAD, and NOK rose between 5% and 3% respectively; 2) a fall in the JPY as demand decreased due to risk aversion; 3) a recovery in the GBP, which had been heavily penalized since the beginning of the year by weak inflation; and 4) a slight rebound in the USD against the EUR due to the prospect of new ECB measures in March.

Three key points emerged from Thursday's ECB meeting that helped to slightly shift market sentiment. 1) Economic circumstances have changed: the fall in oil prices threatens to impact inflation expectations and could even push inflation into negative territory in the coming months. 2) The ECB has the capacity, willingness, and determination to act; in March, the ECB will release new economic forecasts and review its program. And 3) the ECB will not give up, as it aims to bring inflation down to 2% or slightly below that level within a reasonable timeframe.

This week it will be the turn of the Federal Reserve and the Bank of Japan. So far, the Bank of England, the Bank of Canada, and the ECB have shown themselves to be very sensitive to the impact of oil price volatility and the weakness of emerging economies. The USD will be closely watching the Federal Reserve's statement and its implications for the number of US interest rate hikes that may occur during 2016.

FOCUS OF THE WEEK

The Federal Reserve meeting tomorrow, Wednesday, and the Bank of Japan meeting on Friday will be the two main focuses of attention for the currency market this week. Currencies will react to the number of increases that may result from the Federal Reserve's statement. On the other hand, given Kuroda's track record, no option can be ruled out at the Bank of Japan meeting. On the macroeconomic front, the release of final 201 GDP figures for the US, UK, and Spain is a key focus.

Main events from January 26 to February 02

January 27, USA —– Federal Reserve Meeting

January 28, USA — Durable goods

29 JAN EUR —— Inflation Germany

28 JAN UK ——— GDP

January 29, USA —– GDP France and Spain

January 29, USA —– GDP

January 29, Japan — Bank of Japan Meeting

EUR/USD FORECASTS

FORECASTS FOR THE NEXT WEEKS. In the absence of any surprises, EURUSD is likely to remain range-bound between 1,05-1,10. We look forward to how the global uncertainty is resolved.

FORECASTS FOR 6 MONTHS. In search of new energy sources. We continue to believe that the US's stronger position in the economic recovery cycle and the implementation of the expansionary measures announced by the ECB could lead to further appreciation of the USD. A determining factor will be the pace of interest rate hikes by the Fed.