You are on page 1of 3

FX Monthly Report

March 2015







Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar


Technical Analysis
Since the breach of the support at 1.120/1.130 levels in February, EUR/USD continued its bearish movement until 1.046, finding a
strong support and bouncing from its descending trend line. This upward movement was reinforced by the brake of the 50 SMA,
having EUR/USD reaching 1.105. For now, this correction was contained by the 100 SMA 100, signalling a possible return to its
bearish movement. If EUR/USD breaks the support given by the 50 SMA, we can expect a descending movement, and the retesting
of the 1.046 support level, with eyes on parity. If it breaks the resistance given by the 100 SMA, we may well see EUR/USD
continuing its correction up to 1.120/1.130, but should not go higher than these levels.

Fundamental Analysis
The EUR/USD reached its lowest value since 2003 (1.0497),
closing at 1.0739. Nevertheless, Euro climbed from 1.0596 to
1.0850, on the 18th, following the ECB’s publication of the Euro
Zone economic performance in the 4th quarter of 2014. Europe’s
unemployment reached its lowest value since August 2012,
supporting the Euro. In the US, unemployment claims were better
than predicted, with an actual 282K against the 291K expected,
and the Core CPI was greater than expected, reaching 0.2%.
Meanwhile market participants await Yellen to be more precise
on the next increase of FED’s interest rates. She recently pointed
out that market-based measures of inflation have declined since
last summer, driven by changes in risk premium and market
factors. Notwithstanding, FOMC expects that inflation will reach
the 2% goal over the medium term.


April 2 – U.S Trade balance; U.S Unemployment Claims
April 3 – U.S Unemployment Rate
April 8 – FOMC Meeting
April 14 – U.S PPI; U.S Retail Sales
April 15 – ECB Press Conference
April 16 – G20 Meetings
April 20 – German and French Flash Manufacturing PMI
April 21 – German ZEW Economic Sentiment
April 22 – G7 Meetings
April 28 – CB Consumer Confidence
April 29 – FOMC Statement;
April 30 – EUR CPI Flash Estimate y/y

Financial Markets | |

SPOTLIGHT: ECB’s Quantitative Easing
The Quantitative Easing program was announced on 22nd of January 2015, just one week after the Swiss Central Bank decided to
remove their currency peg (highlighted in our January report). In the QE program, Europe’s Central Banks create an additional supply
of money for corporate banks, and consequently the Eurozone. Securities of its member states - mainly long-term sovereign bonds
are bought. The increase in money supply leads to a depreciation of the Euro. It is expected to put further downward pressure on
interest rates, which are partially already negative. This shall give more incentive to invest in Europe and help the Eurozone back to
economic growth. After 18 months, more than 1,140 billion will be injected in the economy, representing 12 % of the GDP of the
Eurozone and 14% of the bond market. The market was expecting the announcement of extensive QE program, but the timeframe
over which the QE will be conducted and its size exceeded market expectations. The program, also known as Public Sector Purchase
Program (PSPP), has been finally launched on the 9th of March 2015, and the market reacted with caution as main European Markets
dropped the day of its implementation (FTSE 100 fell 0.59%, while Germany's DAX dropped 0.39% and CAC 40 fell 0.61%). Despite
that, effects of the policy started to be visible few days later, as
illustrated by the drop in interest rates of sovereign bonds (German
10 Year bonds dropped from 0,4% to less than 0,2% in one week,
French 10 Year bonds’ rate also decreased at 0,48% while it was lying
above 2% less than two years ago) and the large impact on the
equities market with the German DAX reaching an all-time high
above 12,000 points, and CAC 40 sustaining an 18% increase since
January up to 5,000 points, level not reached since May 2008 and the
premises of the crisis. Concerning the EUR/USD exchange rate, it
has reached a 12-year low on the 11th of March 2015, and is facing a
consecutive drop against dollar for 9 months in a row.
Nevertheless, reactions from the actors of the market differ as the
ECB is insisting to confirm that the impact of their policy on the exchange rate is not one of the objectives but rather a side effect.
Some analysts have a different view about ECB’s intentions “Investors believe that the ECB is targeting [EUR/USD] parity,” said
Sebastien Galy, Senior Currency Strategist of Société Génerale, referring to a survey of their clients. The Deutsche Bank forecasted
EUR/USD parity to be reached by 2017, but recent events have led to a re-evaluation of their previsions, expecting parity at the end
of 2016. However a weak euro has also side effects alongside of improving the attractiveness for European-manufactured goods and
thus the trade balance of the Eurozone; "This step destroys the trust in a stable currency that is necessary around the world and
endangers European unity," says Anton Börner, president of the Federation of German Wholesale, Foreign Trade and Services,
criticizing the fact that these benefits are short-term orientated and that it would represent a sign of weakness and fragility for the
European Union in the future.
Economist and Professor Daniel Cohen believes that this intervention is “a good thing to see ECB take action” but that it is “coming
too late”. Bond Market expert and PIMCO co-founder Bill Gross shares this opinion: the QE should have been implemented earlier
and on a larger scale. Gross expresses doubt on the QE’s efficiency in comparison to the results of this policy in the US: banks will
not have an incentive to lend this new flow of money, at the current low (negative) level of interest rates. The director of the French
Economic Observatory (OFCE), Henri Sterdyniak, questions existing demand for additionally promoted bank loans. Many scholars
seem to doubt that the monetary policy will have the same positive effects, as when applied in the UK and the US. In the US, it led
to a significant smoothing of the post 2008 crisis investor’s risk aversion and it helped UK’s Central Bank to recover from inflation
and to decrease uncertainty in stock markets. Different experience has been made when applied in Japan. Although the BoJ purchased
securities, represented 26% of their country’s GDP, some consider that the policy should have been more ambitious and
consequently. The guardian summarizes the different effects the policy had in Japan, US and UK. Further additional sources on the
QE written by the Financial Times can be found here.

Contacts – FEP Finance Club FX team
André Moreira

Charlotte Hoefner

João Fernandes

Financial Markets | |

This publication has been prepared by FEP Finance Club for informational and marketing purposes only.
Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to
change without notice. The information and opinions contained herein have been compiled or arrived at from
sources believed reliable, but no representation or warranty, express or implied, is made as to their accuracy
or completeness and neither the information nor the forecast shall be taken as a representation for which FEP
Finance Club, its affiliates or any of their employees incur any responsibility. Neither FEP Finance Club nor its
affiliates accept any liability whatsoever for any loss arising from any use of this information. This publication is
not, and is not constructed as, an offer to sell or solicitation of any offer to buy any of the currencies referred
to herein, nor shall this publication be construed as an opinion as to whether you should enter into any swap
or trading strategy involving a swap or any other transaction. The general transaction, financial, educational and
market information contained herein is not intended to be, and does not constitute, a recommendation of a
swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission
Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your
needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap
or trading strategy involving a swap or any other transaction. You should note that the manner in which you
implement any of the strategies set out in this publication may expose you to significant risk and you should
carefully consider your ability to bear such risks through consultation with your own independent financial,
legal, accounting, tax and other professional advisors. This publication and all information, opinions and
conclusions contained in it are protected by copyright. This may not be reproduced in whole or in part, or
referred to in any manner whatsoever nor may the information, opinions and conclusions contained in it be
referred to without the prior express written consent of FEP Finance Club.

Financial Markets | |