Traffic will be severely curtailed for the Fireworks. These are the basic rules:
All roads leading in and out of Funchal will be turned into one-way into Town during the evening, and switched to one-way outgoing after the event. No use trying to swim against the tide.
Parking on the Via Rápida or Viewpoints is forbidden.
Parking garages will be closed or closing earlier.
Buses run toward the first roundabout in town from East and West and return from there; they will not cross Town.
The Taxis will do their best!!
So if you want to watch the fireworks, drive into town early, and be patient to get out afterwards.
Better yet: Some hotels offer transfers to viewpoints above Funchal for a decent fee so this may be a good choice, also for residents. Just ask in a hotel nearby if you can book seats on the buses.
info at madeira-weekly.com