FX Monthly Report

December 2014

EUR/USD 1M

EUR/USD 1Y

1,2600

1,4500

1,2500

1,4000

1,2400

1,3500

1,2300

1,3000

1,2200

1,2500

1,2100

1,2000

1,2000

1,1500

1,1900
01-Dec

1,1000
08-Dec

14-Dec

20-Dec

28-Dec

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

MARKET ANALYSIS
Technical Analysis
Following November, the EUR/USD has presented a trendless evolution, between 1.2244 and 1.2570, consolidating this way after
a major drop. A monthly high was achieved on the 16th of December. Since then, the pair returned to its downward trend. A
breakout of the upward trend line, along with a crossing of the 50 MA, reinforced a bullish USD.
The support previously established at 1.2244 was breached, as the EUR/USD dipped to 1.2168. This level worked as a short term
support, further turning into a resistance as the USD continued its journey up. For now, 1.2094 is being tested and if it is not
crossed, the level of 1.2168 may be tested again as a resistance. On the other hand, 1.20 and 1.18 are just around the corner.

Fundamental Analysis
The EUR/USD remained bearish in December, trading at 1.2244,
as German PPI showed up a bit better than expected, along with
GfK consumer climate. The dollar fosters again against the euro,
as the Federal Reserve announced that interest rates are to be
kept low for now, revealing some patience concerning the stance
of monetary policy. Feds announcement did not accelerate the
timing to increase interest rates, which is expected to happen in
mid-2015. Regarding Europe, inflation has been declining sharply
since the end of 2011. At the moment, 12-month inflation is well
below the ECBs stability target of 2 percent as some countries
are experiencing deflation. ECB is thus preparing quantitative
easing, by performing bond purchases, overriding German-led
concerns.

Calendar
Jan. 2 U.S. ISM Manufacturing PMI
Jan. 7 EUR CPI Flash Estimate y/y; U.S. Trade Balance;
U.S. FOMC Meeting Minutes
Jan. 9 U.S. Unemployment Rate
Jan. 15 U.S. PPI; U.S. Unemployment Claims
Jan. 16 U.S. CPI m/m
Jan. 20 German ZEW Economic Sentiment
Jan. 21 U.S. Building Permits
Jan. 22 ECB Press Conference; U.S. Unemployment
Claims
Jan. 23 French and German Flash Manufacturing PMI
Jan. 25 Greek Parliamentary Election
Jan. 28 - FOMC Statement

Financial Markets | fm@fepfinanceclub.org | http://www.fep.up.pt/skillsacademy/fepfinanceclub

SPOTLIGHT: Oil Prices Plunge

Oil prices have hit a five-year low this month. However, analysts say that the price of WTI Crude Oil should increase soon again.
This is the result of an increased supply of oil mainly due to enlarged fracking activities in the US. Some call the U.S. the new EnergySuper Power. One of the major competitors to the Americans is Saudi Arabia, which in contrast to the other countries, does not
currently face difficulties caused by the low oil price. Reasons why they do not ask for a restricted supply could be the high oil
reserves and the chance of a wait-and-see approach. Some claim, Saudi Arabia is waiting until producers with high production cost
are eliminated from the market by low market prices. When high-cost production competitors are forced out of the market, the
supply will decrease and prices should go back up again. The Economist sees this transformation already happening. Other articles
suggest, that low prices in oil might maintain for a while. However, the low price environment decreases the investments in oil
generating assets. This puts upward pressure on the oil price, as supply should decrease. On the other hand the price reflects
expectation of high supply of oil in 2015.
Commodity dependency, 2010-13 Average % of GDP

Fracking is criticized due to its (possible) harm to the

environment and is by now still prohibited in some countries.
This gives not only a comparative but also an absolute
advantage to U.S. oil producers compared to international
competitors. Although prohibited in other countries, the
fracking method is generally possible in Canada, China and
Europe. However, The Economist sees the advantage precisely
in the combination of the oil business experience of Americans,
eager investors and pliable bureaucrats. Furthermore
fracking is rather cheap to other drilling method. The existence
of fields is certain and the setup of a well much less expensive.
The low oil price is benefiting many countries importing oil,
whereas oil exporters are suffering. The Eurozone is one of the
countries benefiting and the low price can be seen as an
injection to the slowed-down economy. Especially heating costs
and fuel decrease and consumers are benefiting from a lower
cost environment next to many industries. Former major
suppliers such as Saudi-Arabia and Russia are now behind the U.S.. Especially Russia, Iran and Venezuela are dependent on a high oil
price as it forms their trade balance. The decrease in price can lead to a deficit in these countries. These declining revenues can have
massive effects on the welfare of an economy. For example, Bloomberg News reported Angola may cut the funding to prevent HIV
due to the decline in revenue given by the decrease in oil price.
Read the OPEC December Monthly Oil Market Report here.

Contacts FEP Finance Club FX team

Andr Moreira

Charlotte Hoefner

andre.moreira@fepfinanceclub.org

charlotte.hoefner@fepfinanceclub.org

Joo Fernandes
joao.fernandes@fepfinanceclub.org

Financial Markets | fm@fepfinanceclub.org | http://www.fep.up.pt/skillsacademy/fepfinanceclub

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