November 2015

 

Technical Analysis

November was characterized by a downtrend. Although the EUR/USD only fell by 4.1% during this period, it recorded 13 negative trading sessions out of 21. A clear sign of this bearish trend is the big fall in the MACD on the first days of the month.
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But, on the 10th of November, there was a bullish crossover, when the MACD crossed the signal line and rose above it. In fact the downtrend did slowdown, but the EUR/USD kept on falling. Applying a Fibonacci Retracement on the downtrend, we can identify two strong lines. The first at 23.6% of the downtrend (1.068). This originally was a support line, but since the 17th of November served as a resistance several times. The second strong line is at the bottom of the downtrend (0.0%). This became an important support line (1.057) for the last trading sessions of the month, and it’s expected to keep as a reference support point in the next month. Should the security rise, we predict further resistances at 1.060, 1.064 and 1.068.[/read]

 
 

Fundamental Analysis

The EUR/USD went down this month, closing below 1.06. It began when Fed Chair was testifying: "we still see the risks to economic growth" leading the currency to 1.0882.
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This trend was reversed with the release of unemployment claims in the US worse than expected (276k against 263K). On the other hand, Draghi said "other instruments could also be activated", reinforcing that ECB will use the necessary measures to stimulate the economy. The key indicators such as Core Retail Sales, PPI and CPI outperformed expectation. Also the German ZEW Economic Sentiment was positive, showing that the economy is growing at a better perceived value than predicted, despite the indicators the currency kept its falling trend to 1.0570. Yellen avoided comments but she said: “we see a domestic economy that is pretty strong and growing at a solid pace” leading us to believe that FED will raise the interest rates on 16th December.

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Political Instability in Europe

In order to control the sovereign debt problem, emerged from the Financial Crisis in 2008, the majority of the European countries, rescued by IMF funds, put into practice austerity policies. Such policies originated a huge discussion among both academic and politicians.
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Many countries that implemented the strongest austerity policies faced recession that led to high levels of unemployment, averaging 11.4% for the Euro Area in 2012 (Eurostat). At this point, public contestation against the austerity policies, that were widely seen as a European imposition (in fact, such measures were already written on the Stability and Growth Pact), started arising in some countries such as Greece (Syntagma Square’s protests), Italy, and Belgium, among others.

Some perceived that such policies were needed to control the high levels of public debt ratios. The opposite side argued, that without policies to stimulate the economic growth, it would be impossible to surmount the sovereign debt problem. Instead of reducing the national deficit, they would hinder economic growth putting an obstacle on the reduction of the deficit in the long term. This divided opinions among European countries.

Until this moment, even though not all the Europeans were pro Europe, the ones clearly against the European project were no more than a drop in the ocean. From this moment on euroscepticism and anti-Europeanism, has been gaining a lot of support across countries. Nordic countries, France United Kingdom, Poland just to mention a few, skewed completely to the right, while Spain, Greece and in a smaller extent Portugal saw the far-left parties become stronger.

In France, the National Front, led by Marine Le Pen, has gained many additional voters. UK´s Prime Minister Cameron included the referendum on a Brexit in his campaign of May´s elections to help to secure his victory. In Poland, the far right wing party won the recent governmental elections and in Spain, the left wing party Podemos is on the rise.

Even the European Parliament has today about one third of eurosceptics (Source: BBC), which means that they doubled their weight in Strasbourg, not enough to constrain the Parliament yet, but already enough to raise some apprehension between the Europeans.

Adding to existing conflicts, the migrant and refugees crisis, fuelled by the Syrian civil war, that began more than four years ago, shows no sign of ending. Eurostat estimates that by the end of October about 720.000 asylum seekers (only the ones that claimed for asylum) had entered in Europe, even though a lot more have passed through the borders undetected (Source: BBC).

Moreover, according to the European Commission more than 3 million refugees are expected to arrive in the European Union by the end of 2016.

Additionally, terrorism became a reality for many Europeans and is making people nervous about the future. This harms even the European confidence levels and thus has an impact on the European economy, through a decrease in consumption and investment (Source: FT).

This is triggering a trail of different events across Europe. Some European countries are putting up walls (e.g. Hungary and Austria), resulting, according the Economist, in more barriers on national boarders in Europe than during the Cold War (also due to the ongoing conflict between Ukraine and Russia) which brings back a protectionist sentiment.

The ongoing tensions between Russia and Turkey could bring some concerns to the EU, since now Europe has a deal with Turkey to shrink the refugee’s inflow; further integration of refugees seems unlikely. For instance, Danish people voted against (53%) adopting the EU rules on cross-border policies and the UK will vote in a referendum in 2017 on the possibility to exit the EU. Current polls show that the Brexit is gaining momentum, and stands now at 50:50 chance (Source: Bloomberg).

But there is something that is really startling: Europe has not been able to act as one, not even to find the minimum amount of consensus to give a coordinate response to the latest events.

In fact, as it was stated by The Economist, there is one indispensable European: Angela Merkel. She is the longest-serving leader in the EU and if it was not for her, the tensions in the continent would probably be much worse. But will she be able to keep in the power to be the leader Europe needs? Recent polls show that she has been losing popularity, but she still has the massive Christian Democrats’ support.

In less than 10 years the future of Europe changed dramatically. From a natural and strong integration, we stand nowadays in a critical point where the question is how to avoid the
disintegration. Tensions are growing, the economic reality is not ideal, and a worrying picture seems to be arising. Yet, with the cooperation that distinguished European Union in the past decades, these challenges are perfectly surmountable. Will Europe manage to do it?[/read]