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December 2015
EUR/USD 1M
EUR/USD 1Y
1,4000
1,1100
1,3500
1,1000
1,3000
1,0900
1,2500
1,0800
1,2000
1,1500
1,0700
1,1000
1,0600
1,0500
1,0500
1,0000
4-Dec
11-Dec
18-Dec
25-Dec
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
MARKET ANALYSIS
Technical Analysis
December was a month marked by high volatility. Starting on the 2 nd of December, the MACD went over the signal line by 6%, which is a
strong bullish signal. In fact, the market went up 4%, from 1.0549 to 1.0938, on the same day. After this huge increase, the quotation point
reached the maximum on the 15th of December (1.10580), finding an important resistance line on 1.1043. Besides this line, there were
also other important resistance lines, such as 1.0987, 1.0944 and 1.1041. The lines of support for December remained at 1.0802, 1.0871
and 1.0902. In the future, we predict that the EUR/USD will find an important support at 1.0829, as well as an important resistance at
1.0992.
Fundamental Analysis
In December, the EUR/USD inverted the downtrend and climbed from
1.0626 to 1.086. With the Eurozone unemployment rate coming out better
than predicted, as well as the PPI and the German ZEW Economic Sentiment,
the Euro strengthen. In the US the economic indicators came out worse than
expected - the manufacturing PMI, the non-manufacturing PMI, the trade
balance and the JOLTS Job Openings led the EUR/USD to 1.1015 (highest
value of the month). On the 16th the FOMC voted on the target interest
rate and it agreed, unanimously, to raise the target range from 0%-0.25% to
0.25%-0.50%. This was the first increase of the rate since June 2006. This rate
hike was not a surprise, as it was already predicted to happen since the
beginning of the year, but awaited to happen only at the end of 2015 (Yellen's
statement in May). Since the change of the FED interest rate was already
predicted, it didnt plunged the pair immediately, but dragged it from 1.0874
to 1.086 in 14 days.
Calendar
Turkey, which saw a huge influx of foreign investment and its economy grew 9% in 2010 and 2011. But this year, the economy is expected to grow by just 3%.
South Africa, which is another country that is paying the price for borrowing heavily in dollars when they were cheap.
China is also likely to feel an impact, especially since the government has started to allow the Yuan to trade more freely. But unlike most emerging markets,
China's size, huge exports and foreign exchange reserves give it protection against possible shocks.
And other emerging markets like Russia, Venezuela and Nigeria also depend on commodities exports for big chunks of their government revenues. Because
commodities are traded in dollars, their prices could drop even further if the dollar strengthens.
There are concerns that a rise will compound that slowdown, as higher rates in the US could strengthen the dollar, the currency in which many countries and companies
borrow. It puts US policy at odds with that in Europe, where even easier borrowing terms are being implemented. (Source: BBC)
Still, the recovery has been disappointing for many. Household incomes remain lower than they were a decade ago when adjusted for inflation, and wages have climbed
only sluggishly even as firms hired back workers. Hourly earnings have risen by about an average 2.2 percent annual pace over the past seven years, compared with 3.3
percent in the 20 years through 2008. (Source: Bloomberg)
Beyond the psychological signal, the Fed's decision changes what banks charge each other for overnight loans. Because banks and other lenders use the Fed benchmark to
determine the rate on loans from mortgages to credit cards, consumers will see a difference, albeit a small one.
After years of making little return on loans, banks are expected to raise rates on loans more rapidly than on deposits. Homeowners with fixed-rate mortgages won't see
any change in their monthly payments, but a borrower with an adjustable-rate mortgage is likely to see an increase at the next adjustment
Shortly after the Fed's rate decision, major banks including Bank of America (BAC), Wells Fargo (WFC), JPMorgan Chase (JPM) and U.S. Bancorp (USB) announced hikes
in their prime lending rate, from 3.25 percent to 3.50 percent. (Source: CBSNews)
Financial markets took the news calmly. The Standard & Poors 500-stock index rose 1. 5 percent to close at 2,073.07. The yield on two-year Treasuries, closely tied to
short-term interest rates, closed above 1 percent for the first time since April 2010. (Source: NYTimes)
The Fed statement and its promise of a gradual path represented a compromise between policymakers who have been ready to raise rates for months and those who feel
the economy is still at risk from weak inflation and slow global growth. Yellen will now face the challenge of maintaining an internal consensus over the pace of rate
increases amid considerable economic uncertainty and the political pressures of a presidential election year.
Pedro Guimares
Analyst & Trader
lvaro Leal
Rui Ramos
Hugo Sanches
Analyst & Editor
Joana Silva
Analyst & Trader