FX Monthly Report

November 2017

EUR/USD 1M EUR/USD 1Y

1,2000 1,2200
1,2000
1,1900 1,1800
1,1600
1,1800 1,1400
1,1200
1,1700 1,1000
1,0800
1,1600 1,0600
1,0400
1,1500 1,0200
3 - Nov 10- Nov 17 - Nov 24 - Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

MARKET ANALYSIS

Fundamental Analysis
November was marked by an appreciation of the EUR/USD pair. In its first day, Calendar
FED confirmed that Federal Fund Rate will not change and stated that the 1st December - ISM Manufacturing PMI
economic activity is growing steadily, which had a negative impact on the pair.
In the following days, the release of US Unemployment Rate showed that labor 4nd December - Eurogroup Meetings
market maintains a favorable progress, leading the USD to appreciate again. This
7th December - ECB President Mario Draghi Speaks
trend was maintained until November 7th when the pair reached 1,1586 due to
the released of lowest value of German Industrial Production since January. On 8th December - US Unemployment Rate
the 14th, German Preliminary GDP q/q data was announced at 0.8%, 0.2pp
13th December Federal Funds Rate
higher than forecasted, appreciating the pair to 1,1797 that day. In the following
ones, the pair registered a depreciation trend, particularly on the 20th, with 13th December - FOMC Press Conference
German Liberal Party stating that the political coalition with Christian
14th December ECB Minimum Bid Rate
Democrats couldnt be fulfilled, creating the idea that the only solution would
be a Snap Election. Moreover, eight days later, Jerome Powell, new FED Chair 14th December ECD Press Conference
nominee, announced that he would continue to normalization of Monetary
21st December US Final GDP q/q
Policy, and that expects interest rates to continue to rise, which depreciated
the pair that closed the month at the value of 1.1902.

Technical Analysis
In November, EUR/USD started at 1.1631 and has registered a bullish movement. On the 3rd, the MACD crossed down the signal line confirming
the beginning of a downtrend, which led the pair to decrease until reaching the support line marking of 1.1555 on the 7 th - the lowest value of
the month. In the following days, the EUR/USD climb was consistent, even breaking the resistance of 1.1712, on the 14 th. At the same time, the
difference between SMA 100 and SMA 50 was smaller and smaller, prospecting a nearby cross, as MACD was already above signal line confirming
the strength of the upward momentum. The spot rate then floated between the new support of 1.1712 and the resistance 1.1847 until occurring
an increase movement that broke the resistance and defined a new one of 1.1940 on the 24th; the pair then bounced between the new support
(previous resistance) of about 1.1847 and the new resistance not breaking any of them, ending the month at 1.1902.

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 Fed Chair Nomination

On November 2nd Donald Trump made an important, if yet predictable, decision. He has nominated Jerome Powell to be
the next Chair of the Federal Reserve. If his nomination is confirmed, Jerome Powell will be the sixteenth Chair of the Fed,
following the incumbent Janet Yellen. Although the nomination was expected, and will probably be passed without major
hiccups by the senate, the President of the US broke a precedent that goes back many years by not keeping Yellen for a
second mandate. Source: The NY Times
There was much speculation about what Trump would do and who were the possible candidates to the position but, as
the day of the nomination closed by the field, it narrowed to three possibilities. The names most heard in the press were
Jerome Powell and John Taylor, even if Trump insisted that renominating Yellen was still a possibility. Taylor is a Stanford
economist and has previously served as Treasury undersecretary for international affairs; he has been an outspoken critic
of Yellens mandate and his nomination would mark a stark change in the Feds Monetary Policy and could be severely
disrupt to the financial markets. Powell, on the other hand, would not be as disruptive. He, a law school graduate, has
served as a Fed governor since 2012 and has voted in favor of every Fed policy during his tenure. Source: The NY Times
Powell, despite being a Republican and not an economist like Yellen, is not expected to noticeably change the current
Monetary Policy that has been carried out by its incumbent until this moment. As governor he was a centrist voice in
Yellens majority, calling for the end of the stimulus campaign at a cautious but steady pace. Where he could be different
than Yellen is in his stance on bank regulation, an area where the President has been quite vocal on his preference for
looser regulation. And, albeit the transition is expected to be smooth with Yellen stating that she was confident in his
deep commitment to carrying out the vital public mission of the Federal Reserve, it has its opponents with Paul
Ashworth, chief US economist at forecasting firm Capital Economics referring that Powells resume is subpar for a Fed
Chair nominee and that, under his mandate, there is a higher risk of a serious policy mistake. Source: The NY Times, CNBC
The nomination had little effect on the US financial
markets. The nomination came out on the same day as the
details of a big tax reform bill that Senate Republicans
have been announcing for quite some time, hence it is
challenging to distinguish between the effects of the two
facts. The 10-year Treasury Bonds had their yield at 2.35%,
lowering from the 2.4% value that was crossed in the week
before when John Taylor was still a potential candidate, a
more hawkish one. The idea of Powell being more dovish
on Monetary Policy caused the dollar to trade slightly
lower on the days leading up to his nomination as it was US Dollar Index, November 2nd, Source: Investing
expected. After the nomination the Dollar Index fell 0.1% to 94.7, although it was higher than the five-session low of
94.41 hit previously on the same day. Source: FT
Jerome Powells confirmation hearing was held on November 28th. One of the questions he answered concerned
regulation, a topic in which he is seen as posing a significant change from his future predecessor. Questioned about the
Dodd-Frank act (a law made in 2010 after the banking crisis that has made big changes to bank regulation), he asserted
that the law was successful in strengthening the financial system but could use some improvement. Praising the reforms
as successful in assuring that no bank is too big to fail, he claimed that they also imposed some burdens on banks that
werent necessary. By taking this mid of the road, a moderate approach, he didnt completely satisfied neither of the
sides of the aisle, leaving Elizabeth Warren, a senate Democrat, stating that she was worried about his opinion of a lack
of need to have stricter regulation. About the economy, he showed himself optimistic saying he expects his countrys
GDP to grow at 2.5% this year and the next, which are better numbers than the economy has had for several years now.
With also a low unemployment rate, at 4.1%, he thinks that all the conditions are met to normalize the interest rates and
to reduce the size of the balance sheet, which has grown quite much as the Fed responded to the recent crisis. Questioned
about it, Powell also affirmed he was strongly committed to an independent Federal Reserve, responding to Democrats
worries of pressure from the White House. Source: BBC, abc News
There are still some steps between Powell and his appointment as the Chair of Federal Reserve. He now must deliver
written responses to follow-up questions made by the committee, who will then vote on his nomination. Passing the
committee, which is expected, Powell will then stand before the full Senate before he is appointed to the job. Though
expected to be appointed before the end of Yellens mandate in February of 2018, he will have to succeed a mandate in
which Yellen came as close to achieving its mandate as at any time in history by controlling inflation at the same time
unemployment was sharply reduced. Source: The Wall Street Journal, The NY Times

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 Contacts FEP Finance Club FX Team

Joo Carvalho Nuno Teixeira Bruno Veiga

Director of Financial Markets Analyst & Trader, Head of FX Analyst & Trader

Gonalo Santos Fbio Rossi Gil Bandeira

Analyst & Trader Analyst & Trader Analyst & Trader

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MARKETANALYSIS

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