18 September 2020 | Mid week Currency management update | USD caution

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

USD Index	LT-M	MT-W	ST-D
93.00 (93.26)
Trend	↓ (↓)	↑ (↑)	↓ (↑)
% Risk Weight	10 (9)	18 (12)	69 (72)
Allocation	70% (70%)

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.

9 September: Today we increase general dollar receivable hedge from 50 to 70%. The signal is a weak weekly risk weight scenario coupled with a rapidly increased risk on the daily (Bearish divergence developing vs Weekly). First objective is 88.50 which is the 2017 support followed by the 2013 support at around 80.00. 70% is a manageable risk for true forward dollar receivable against major currencies. Dollar payables can be kept at spot and no hedge.

EUR/USD	LT-M	MT-W	ST-D
1.1843 (1.1815)
Trend	↑ (↑)	↓ (↓)	↓ (↓)
% Risk Weight	86 (85)	81 (85)	32 (20)
Allocation	70% (70%)

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.

9 September: Today we increase dollar receivable hedge against Euro from 50 to 70%. The signal is similar to that of the dollar Index with a weak weekly risk weight scenario coupled with a rapidly increased risk on the daily (Bullish divergence developing vs Weekly). First objective is the 2017 top at 1.2400 followed by the 2013 peak at around 1.40. 70% is a manageable risk for true forward dollar receivables against Euro. Fwd Dollar payables exposures can be kept at spot without hedge.

GBP/USD (Cable)	LT-M	MT-W	ST-D
1.2910 (1.3000)
Trend	↑ (↑)	↓ (↓)	↑ (↓)
% Risk Weight	75 (75)	67 (83)	25 (20)
Allocation	50% (50%)

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.

9 September: GBP shows a similar picture as EUR and Index because of the developing bullish divergence between Daily and Weekly risk. but GBP also looks slightly weaker in its own right and could stall at a slightly higher Cable level and then folllow the US Dollar downward trend against other major currrencies. Given that Cable technically still looks fairly firm we keep our perpetual hedge at 50% for now.

USD/JPY	LT-M	MT-W	ST-D
106.20 (105.30)
Trend	↓ (↓)	↓ (↑)	↓ (↓)
% Risk Weight	42 (45)	27 (30)	12 (56)
Allocation	50% (50%)

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.

9 September: Dollar Yen is looking for direction and doesn’t look as weak as aginst other major currencies including GBP. Being directionless creates a more speculative scenario and the best risk averse remedy is to keep dollar receivable exposures covered at 50%.

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GBP/EUR	LT-M	MT-W	ST-D
1.0900 (1.0990)
Trend	↓ (↑)	↓ (↑)	↑ (↑)
% Risk Weight	36 (37)	45 (60)	31 (81)
Allocation	80% (80%)

18 September: Daily droped 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.

9 September: GBP has returned into its natural softer position during the past 2 weeks. It almost looks like GBP may be building a bottom with mild bullish divergence in the Monthly risk frame. Brexit remains the weaker link, and it doesn’t change the overall weaker picture for GBP vs Euro. A break of 1.0945 on a closing basis sets up for a weaker GBP/Eur to challenge the March 2020 low of 1.0500. No Change.

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