02 October 2020 | Currency update | GBP and USD stay on high alert

covering USD Index, EUR/USD, GBP/USD, USD/JPY, GBP/EUR

USD Index	LT-M	MT-W	ST-D
93.80 (93.00)
Trend	↑ (↓)	↑ (↑)	↓ (↓)
% Risk Weight	12 (10)	30 (18)	55 (69)
Allocation	70% (70%)

Note: The Tradingview service we use and US$ Index chart above appears to have a bad price print on Sept 21, which hopefully will be corrected relative soon. Our risk levels above are based on a database without that false print.

02 October: The dollar index represents the price trend of the USDollar versus a basket of major currencies with Euro weight at 57.6%, Yen at 13.6%, Sterling at 11.9%, CAN$ at 9.1%, Swedish Kroner at 4.2% and Swiss Franc at 3.6%. Official Data goes back to the introduction of the $index in 1973. The present correction upward after the 11% drop since March may be pushed a little further although the medium term looks very vulnerable having made a single bottom in the technical tools we follow (stochastic Slow, MACD and RSI). No change in risk approach with 70% covered on long forward dollar exposures.

18 September: The dollar index has dropped over 10% since March and only shows signs of a possible short term pause. Weekly risk turned up and Daily consolidating. As the downtrend is considered a secondary bear market we would look for Medium term Weekly and Long term Monthly to develop bullish divergence before a more serious correction can be expected. Under normal circumstances of course an todays circumstances are far from normal. Dollar receivable transaction risk should be largely covered (now 70%). No Change.

EUR/USD	LT-M	MT-W	ST-D
1.1713 (1.1843)
Trend	↓ (↑)	↓ (↓)	↑ (↓)
% Risk Weight	86 (86)	70 (81)	39 (32)
Allocation	70% (70%)

02 October: The Euro continues to nibble at the down sloping trendline that started in 2008 from the 1.60 handle and connecting lower consecutive peaks in 2011 2013 and 2017. A clean break will probably setup for a fresh long term rally towards the 1.40 level. The uptrend of the Euro medium and long term term looks very far from finished supporting our 70% perpetual hedge on long dollar transaction exposures. Economic and Translation exchange risk should also be a major consideration in the current environment.

18 September: We favor the larger dollar receivable hedge or the short dollar side of the market until we see a first bearish divergence at least in the EUR/USD cross. The 15 point rally since March does not look technically finished. Until we see a well developed high in the EUR we stay with our outlook where more dollar protection is the safer management consideration.

GBP/USD (Cable)	LT-M	MT-W	ST-D
1.2920 (1.2910)
Trend	↑ (↑)	↓ (↓)	↑ (↑)
% Risk Weight	78 (75)	50 (67)	66 (25)
Allocation	50% (50%)

02 October: Cable looks to be one of the most vulnerable exchange rates in the $index basket supporting our much weaker outlook for GBP versus Euro. Yet, this needs to be confirmed by subsequent price action. As a result we maintain the lower 50% hedge on Long dollar transaction risk.

18 September: Not much change since our last update September 9. If at September Month-end GBP closes at current levels it indicates a possible monthly trend reversal having made a higher high than the previous month August 2020 and closing below the August low. If that happens we may switch away from a 50% cover of dollar receivable risk to a much lower or even zero cover level depending on the shorter term indicators at the close of September 30. No Change for now.

USD/JPY	LT-M	MT-W	ST-D
105.22 (106.20)
Trend	↓ (↓)	↓ (↓)	↓ (↓)
% Risk Weight	41 (42)	25 (27)	67 (12)
Allocation	50% (50%)

02 October: If Dollar Yen continues to show similar risk action as during the 2007-2010 period the rate should be lower in 12 months time. The picture however is not clear yet and we like to see a break of the 2016 low in order to generate a trigger for a larger than 50% dollar cover.

18 September: Dollar Yen has weakened further and even though making new daily and weekly lows doesn’t look particularly weak. Support is at 100 Yen per dollar. No Change.

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GBP/EUR	LT-M	MT-W	ST-D
1.1025 (1.0900)
Trend	↓ (↓)	↑ (↓)	↑ (↑)
% Risk Weight	37 (36)	35 (45)	73 (31)
Allocation	80% (80%)

02 October: GBP rallied 1.5% since our 18 Sep update. This rally looks to be a short term event a bearish divergence appears to be developing between Daily and Weekly time frames. Our best consideration is for higher risk of a lower GBP exchange rate across the board and with a sub par price level against Euro which would be a historic low and very much in line with the historic trend of higher inflation in the UK than the major economies in Europe mainland. No Change.

18 September: Daily dropped sharply to oversold at below the 1.0800 handle. With weekly risk turning down again this cross still looks vulnerable to further erosion in the short to medium term. No Change.

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