FX Monthly Report

October 2017

EUR/USD 1M EUR/USD 1Y

1,1900 1,2500

1,1800 1,2000

1,1700 1,1500

1,1600 1,1000

1,1500 1,0500

1,1400 1,0000
4 - Oct 11 - Oct 18 - Oct 25 - Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

MARKET ANALYSIS

Fundamental Analysis Calendar

In October the EUR/USD was marked by a depreciating path. On October 2nd, 1st November - ISM Manufacturing PMI
USD appreciated as Supply Management IPM data was higher than expected,
revealing an encouraging US industry activity, which forced the pair to decrease
3rd November - US Unemployment Rate
from 1.1818 to 1.1732. Later on 6th, the US unemployment rate showed a good 7th November - ECB President Mario Draghi Speaks
result of 4.2%, beating the forecast of 4.4%. However, doubts regarding Trumps
choice of FED chair have refrained further USD appreciation. The strong
7th November - FED Chair Janet Yellen speaks
Eurozone production data in the following days, regardless of some market 9th November - US Unemployment Claims
nervousness about the outcome of the German election and political
convulsions in Spain, made the EUR/USD appreciate to 1.1859 on 11th October. 15th November - Core Retail Sales
On 19th, after the US Senate has passed a budget blueprint, a crucial step in 17th November - ECOFIN meetings
Trumps tax cut plan, USD appreciated until 23rd, decreasing the rate from
1.1849 to 1.1749 through those days. Octobers main event was the ECB Press 24th November - German Ifo Business Climate
Conference on 26th. After announcing the maintenance of the minimum bid rate 29th November - OPEC meetings
at 0.00%, Mario Draghi revealed the QE bond buying program reduction but
also his extension. This led to a significant depreciation of the EUR/USD, closing
at 1.1650. Since Draghis speech, the pair did not suffer substantial variations
ending the month at 1.1646.

Technical Analysis
On October, EUR/USD has presented a trendless evolution, mostly bouncing between a support around 1.170 and a resistance close to 1.187.
The month has started with a decrease in the pair as SMA9 crossed below SMA50. On the 12th and next four days EUR/USD registered a
divergence from the MACD as the first decreased and the second increased, proving the weak downward movement, which was confirmed on
18th with EUR starting to appreciate as the SMA9 crossed the chart in the previous day. The great highlight of the month was October 26th due
to a sharp depreciation of the EUR; MACD declined, crossing down the signal line. The support of 1.170 was broken as the pair closed at 1.1651
that day. After some consolidating ups and downs, the month of October closed with EUR/USD at 1.1642.

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 Catalonia Declares Independence

Spain faces a critical political crisis since Catalonias referendum whose purpose was to declare Independence. The Parliament of Catalonia approved
the referendum on October 6th, however the Spanish Constitution court promptly suspended it, once the court declares it a breach of the Spanish
Constitution. Catalonia has a long history of remarkable events towards independence. This movement, led by the former regional president Carles
Puigdemont, proclaims that Catalonia has its own culture, morals, economy, politics, and language and therefore it deserves self-rule.

Indeed, the area first emerged as a distinct region with the rise of the County of Barcelona to pre-eminence in the 11th century. In the 12th century,
regions were brought under the same Kingdom, but only in the 15th century was created the Kingdom of Spain and the aspirations of Catalonian
Independence eased. As Spain became a republic in 1931, Catalonia was given a broad autonomy; however, after the Spanish Civil War in 1939,
General Francisco Francos applied an ultra-conservative rule aiming to avoid republican resistance, resulting on Catalonia autonomy revoked,
Catalan nationalism repressed and use of the Catalan language restricted. Source: BBC

Spain became a democracy after Francos death, when Catalonia institutes its own parliament and executive, also known as the "Generalitat" in
Catalan. In 2010, Spain ruled a constitutional court to set limits on Catalans claims to nationhood. This decision encouraged separatist movements,
with even the president at the time, Jose Montilla, expressing that the ruling had "attacked the dignity of Catalans".

Spain government proclaims Catalonia autonomy was deprived after the government in Barcelona announced independence. However, while the
region is deeply involved in its own culture, Catalan language is actively encouraged in education, and many Catalans believe that the region generate
more wealth than the remaining Spain. Beyond, separatist movements are fueled by blaming the central government for Spain 2008 debt crisis.

Sides were entrenched, Catalan MPs voted to establish an independent republic and the referendum was organized to decide if either Catalonia
should become an independent state or not. The results were massive on the independence agreement: 92,01% voting for independence and 7.99%
voting against, on a turnout of 43.03% (regional government claim). Spains government treat the referendum as illegal and the countrys
Constitutional Court in early September ordered the planned vote to be suspended. Source: The Independent

Spain reacted with "firmness and proportionality", as Spain's Deputy Prime Minister Soraya Saenz de Santamaria praised police in the region for
acting with violence which resulted in police confrontation and hundreds of people injured; likewise, dozens of polling centers were shut down, with
Catalan government estimating that up to 770,000 votes were not cast due to the police crackdown. Source: ABC news

Spains attorney is bringing charges of rebellion, sedition and misuse of public funds over fourteen members of the deposed Catalan government,
including Carles Puigdemont. However, Puigdemont travelled to Belgium the night before the announcement with his four former ministers. He
states he is not trying to evade real Justice, but only trying to raise their cases for statehood at the EU institutions. Source: The Guardian

In turn, Spanish Prime Minister, Mariano Rajoy, imposed direct rule on Catalonia, dissolved the regional parliament and ordered regional elections
to be held on December 21st. Rajoy says he has decided to call free, clean, and legal elections as soon as possible to restore democracy, aiming to
restore the self-government that has been eliminated by the decisions of the Catalan government. Source: The Guardian

The impact on Spains economy is already being felt: Barcelonas Chamber

of Commerce cut its growth estimates for Catalonia from 2.7 to 2.5% for
next year, business group Aecoc expects tourism to fall around 20% and
the local trade association stated that hotel occupancy rates in Barcelona
fell to about 80%. Likewise, properties for sale have increased by 50% on
tourist destinations and foreigner buyers reduced the negotiations on real
estate in Catalonia. The damaged estimated to the country is $250 billion
(Madrid claim) once people are still deciding whether Barcelonas is a worth
spot for tourism and investment or not. Source: Bloomberg

Businesses in Spain are being required to take strategic decisions over the
country political crisis. Many companies have already stated that they would
move their legal bases from Barcelona to Madrid, to avoid coming under a
new Catalan Republic, likewise, it may disrupt many of the local government
services and processes on which businesses rely. Some big corporations
Ibex 35, October 27th. Source: FT
have already done it, such as CaixaBank, Sabadell and Gas Natural Fenosa.

The Stock market has reacted negatively as expected: the benchmark Ibex 35 index, which follows
the performance of Spains largest companies, has decreased 1.5% after the vote by the Catalan
parliament, with Catalan banks among the biggest fallers. Spains 10-year bonds rose its yield on 4bps,
reaching 1.58%. EURUSD has also depreciated, reflecting fears that the dispute could escalate into
another major crisis in Europe. Sources: CNN, FT, FT, Reuters

This crisis also brings concerns over EU regarding the willing of other regions asking for nationhood
and autonomy. Catalonia represents only a small part of the Europe issues requests, resulting in its
independence as a north to other countries further political movements.

The separation is already being costly for everyone, and the overall impact is not yet measurable as
the future lies on a long and difficult road for the restoration of democracy, since the duty to decide
its own destiny regards on the stabilization of Spain on Catalonia or on the freedom power of
Catalans, beyond economic and political interests.

Pro-independence movements in Europe.

Source: The Guardian

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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

Lucas Burigo Gonalo Santos Fbio Rossi Gil Bandeira

Analyst & Trader Analyst & Trader Analyst & Trader Analyst & Trader

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MARKETANALYSIS

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