FX Monthly Report

February 2017

EUR/USD 1M EUR/USD 1Y

1.0900 1.1800
1.0800 1.1600
1.0700 1.1400
1.0600 1.1200
1.0500 1.1000
1.0400 1.0800
1.0300 1.0600
1.0200 1.0400
1.0100 1.0200
1.0000 1.0000
6 - Feb 13 - Feb 20 - Feb 27 - Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb

MARKET ANALYSIS

Fundamental Analysis Calendar

In February, the EUR/USD showed a downward trend, after starting the month at 3rd Mar - Fed Chair Yellen Speaks
1.0790 and closing at 1.0552. The month started with the ISM Manufacturing PMI 8th Mar - Crude Oil Inventories
showing a growth for the fifth consecutive month. On the same day, the FOMC
statement indicated that the labour market has continued to strengthen and that 9th Mar - Minimum Bid Rate; ECB Press Conference
economic activity has continued to expand at a moderate pace, with the pair 10th Mar - Unemployment Rate (USA)
reaching 1.0731. On 3rd February, the unemployment rate performed worse than 14th Mar - PPI m/m
expected (4.8% against 4.7%) leading to a slightly depreciation of the USD reaching
15th Mar - FOMC Economic Projections; FOMC
1.0797 per EUR on that day. This trend continued in the followed days boosted
by the speech of the ECBs President on 6th day of the month. On the 14th and Statement; Federal Funds Rate; FOMC Press
15th, respectively, the PPI m/m and CPI m/m was released with both showing good Conference
results at 0.6% leading a bearish movement to 1.0523. The minutes of the 22nd Mar - Crude Oil Inventories
Monetary Policy Meeting were out on the 20th, leading to an appreciation of the
27th Mar - German Ifo Business Climate
USD until 1.0581. On the 22nd, the FOMC Meeting Minutes was released and the
USD reached a peak of 1.0494, the highest of the month. On the 28th February, 28th Mar - CB Consumer Confidence
President Trump spoke on the Congress bringing the appreciation of USD. 30th Mar - Final GDP q/q (USA)

Technical Analysis
The EUR/USD depreciated on February. On the 1st day of the month the resistance at 1.0810 was tested but not broken. The pair started the
month with a firm downtrend, which broke the support line at 1.0670. This movement was reverted temporarily in 15th and 16th day of the
month, returning next to its initial trend, shaping the new support and resistance at 1.0490 and 1.0670, respectively. On the 22th February, we
saw again an uptrend, nearly until end of the month, but it was not enough to dissolve the general tendency of the month. The MACD has
crossed the signal line early on the month and remained under it during all the period analyzed, signalizing further bearish movements which
actually happened. The SMA 100 was all month above the SMA 50 signalizing no change in the general downtrend.

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 OPEC and Non-OPEC countries: Global oil impact

A deal was reached in December between OPEC and non-OPEC members to cut oil production to lift the prices of the commodity. The agreement,
which is the first of its kind in about 15 years, took effect on January 1st and it is valid for six months. Since then, oil prices have gone up to more
than $50 as the deal has been having a high level of compliance.

On November 30th of 2016, OPEC members reached an agreement to cut oil production by 1.2 million barrels per day (bpd). Later, in early
December, OPEC was able to convince non-OPEC members to agree to also cut their production by 558 thousand barrels per day, slightly less
than the 600 thousand bpd commitment that they were looking for. The pact aimed to reduce a worldwide oil glut that had been pushing the prices
down, putting pressure on the finances of several countries due to reduction of revenues in the governments budgets, like Russia and Saudi Arabia.
(Source: CNBC)

The deal sent Brent prices up to the $52-55 range, after the price had already gone up by 17.8% in a week from $45 to $53 after OPEC announced
its cut in production. The price had reduced more than 50% since 2014, when Saudi Arabia increased its production sharply trying to drive US shale
firms and other producers with higher costs out of the market. Despite the success of the plan, it drove the price from a high of $115, in July of
2014, to below $50 per barrel, since August of 2015, and, in January of 2016, even lower than $30, hitting the revenues of oil-dependent economies.
(Source: Forbes and Reuters)

In the compromise, as stated previously, OPEC countries would cut their production by 1.2 million barrels, yet some countries such as Nigeria and
Libya were exempt from the deal due to a production-denting civil strife, putting the biggest burden on Saudi Arabia that committed to cut 486
thousand bpd. Non-OPEC countries would cut their output by 558 thousand bpd, the biggest reduction ever agreed by non-OPEC members, with
the biggest cut coming from Russia, that would reduce its production by 300 thousand barrels from its October levels of 11.247 million bpd,
although the reduction would occur gradually, starting with 200 thousand barrels by the end of March reaching 300 thousand after six months.
(Source: Reuters)

In January, OPEC countries cut their output by 840 thousand bpd to 32.3
million barrels, representing only 60% of the proposed cut. Although the
10 OPEC countries that agreed to reduce their output, indeed cut it by
83% of the agreed amount, Iran, Nigeria and Libya were allowed to increase
their production, rising the efforts made by the others. As such OPECs
total output remains 550,000 barrels a day above the target set out on the
Nov. 30 deal. Saudi Arabia cut its production by 500 thousand, more than
it had to, to less than 10 million bpd for the first time in almost two years.
The oil price fluctuated throughout the month above $50 with investors
wary that US drillers would take advantage of the higher prices to make a
comeback. (Source: Bloomberg)
Figure 1 Historic Oil price (Source: Bloomberg)
In February, OPEC members that committed to the cut, increased their
compliance from 83% to 94% with the average output falling to 29.87 million
bpd, down from 29.96 million bpd in January and 31.17 million bpd in December. Saudi Arabia was again the biggest contributor to the reduction
with a cut of 744 thousand bpd, well above the target cut of 486 thousand bpd. Therefore, Saudi Arabia, again, compensated for other OPEC
countries such as Algeria, Iraq, Venezuela and even its major ally the United Arab Emirates, which cut output by 33 thousand bpd, well below the
target reduction of 139 thousand. Nigeria and Iran increased, again, their output from their January values and Libya maintained their output
compared with the previous month. Oil price continued to fluctuate above the $50 mark in February. (Source: CNBC)

This program is effective for six months with the possibility of an extension by the OPEC when it ends. Although an extension is possible, some
members, including Saudi Arabia, believe it may not be necessary because, as said by Al-Falih, Saudi Energy Minister, Based on my judgement today,
I think its unlikely that we will need to continue. Demand is going to pick up in the summer, and we want to make sure the markets continue to
be supplied well. We dont want to create a shortage or a squeeze, so the extension will only happen if theres a need, and if theres a need, we
will do it. (Source: Bloomberg)

DID YOU KNOW

Why the Great Britain Pound and the United States Dollar pair are known for the cable?

Before the moderns times with internet, fiber cable and satellites, the communications between the London Stock Exchange and the New
York Stock Exchange were made by a submarine cable.
The first truly successful cable across the Atlantic was completed in July of 1866, reliably transmitting currency prices between London and
New York City Exchanges. The first exchange rate, determined with this method, was published in the magazine The Times on the 10th
August of 1866. Those were the first steps for what we know as the modern forex trading market, and thats the reason why today we call
the pair GBP/USD the cable in the forex world. (Source: Forex.info)

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 Contacts FEP Finance Club FX Team

Franklin Carneiro da Silva Joana Silva

Director of Financial Markets Analyst & Trader, Head of FX

Bruno Veiga Gonalo Santos Nuno Teixeira

Analyst & Trader Analyst & Trader Analyst & Trader

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MARKETANALYSIS

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