2020 Forex | A rigged by nations asset class | 15 May

Foreign Exchange forecast 15 May 2020. A rigged market

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

USdollar Index Weekly Dollar Index Price Risk Analysis Forecast

(Previous week in brackets)

USD Index LT-M MT-W ST-D
100.36 (100.29)
Trend ↑ (↓) ↑ (↓) ↑ (↓)
% Risk
Weight
54 (50) 58 (55) 80 (50)
Allocation 50% (50%)


Last week the risk trends for Dollar Index were down across most time frames. This week they are up. The USD Index looks pretty directionless with technical tools being inconclusive as well. Flat with medium risk levels. The fundamental narrative based on Debt Deflation woes leans very much to a much stronger dollar. But as major world currencies can no longer seek direction from interest rates and fiat currencies are available without limitation it seems harder every week to make a call that limits FX risk. Speculators still play these markets in full force. FX is the largest financial market on trading volume. It therefor offers massive liquidity. The best risk position is a neutral one with 50% weight on any exposure.

8 May: As stated a few weeks ago, this completely rigged market which always seemed impossible to manipulate due to sheer size, has become a victim or maybe even a beneficiary of directionless movement over the past year or so. The only major currencies maybe finding their own turf are GBP, Yen and CHF. Hence the call for caution with a max 50% hedge. The index has gone sideways for a month in a narrow 2% range with 3 throughs and 3 peaks, now in a minor downtrend. Some smart macro analysts like Raoul Pal look for a very strong dollar on fundamental grounds and because Europe is losing it. Bit surprising with Europe showing a much stronger Debt to GDP ratio, but maybe that isn’t macro enough. Technically, across time frames, the index is not looking strong especially with a clear bearish divergence on weekly risk weight already 7 weeks ago. No more than a 50% neutral hedge

EUR/USD FX live price, Weekly EURO vs US Dollar Price Risk Analysis Forecast

(Previous week in brackets)

EUR/USD LT-M MT-W ST-D
1.0814 (1.0830)
Trend ↓ (↓) ↓ (↓) ↓ (↓)
% Risk
Weight
35 (35) 28 (28) 25 (35)
Allocation 50% (50%)


This undecided market has difficulty breaking away from the steady Euro downtrend over the past 2 years. Risk weight levels and direction still favor a weaker dollar. One month we trade near the highs of the past year and the next nearer the lows within broadly a 4% price channel. We stay on neutral risk ground with just a 50% cover on dollar receivables.

8 May: Raoul Pal, who is a very outspoken and bright maco economic thinker just said in a broadcast on May 8 that if Euro breaks 1.0770 there is little stopping it from returning to nearer the 2000 levels. We cannot see where the 1.0770 level comes but with monthly weekly and daily risk at close potential bullish divergence trigger levels if that break of 1.0770 or the recent low tick at 1.0636 occurs, the likilyhood, technically of a dollar drop is a great deal móre likely. And in terms of macro economic, the USA is certain to print dollars to infinity whereas Europe appears more cautious. The Karlsruhe ruling on ECB independence proves that point and raises a few ears. We stay on a very neutral and risk responsible 50% hedge. Speculation on where this market goes short term seems unwise. No Change


Cable GBP/USD FX live price, Weekly Sterling vs USDollar Price Risk Analysis Forecast

(Previous week in brackets)

GBP/USD (Cable) LT-M MT-W ST-D
1.2095 (1.2390)
Trend ↓ (↓) ↓ (↓) ↓ (↓)
% Risk
Weight
47 (50) 50 (55) 8 (40)
Allocation 50% (50%)


GBP is the weakest currency of the majors and again lost a bit more ground this past week. Short term daily gets oversold and the technical risk weight continues to favor a longer term uptrend for cable, i.e a weaker dollar. Neutral risk means 50% over only on transaction exposures.

8 May: A very uneventful 1.5% trading range for a few weeks now ending at 1.2390 on May 8. How the UK will fund itself out of this pandemic will be a serious challenge, being virtually bankrupt. The UK may well allow or be forced to let rates go up. The long term risk weight for cable is still trending down whilst weekly turned down from up at the same weight risk level but that happens in a very much sideways price range, confirming potential dollar weakness. Thus we stay in a neutral risk hedge position


USD/JPY FX live price, Weekly USdollar vs Japanese Yen Price Risk Analysis Forecast

strong>(Previous week in brackets)

USD/JPY LT-M MT-W ST-D
107.00 (106.60)
Trend ↑ (↑) ↓ (↓) ↓ (↑)
% Risk
Weight
52 (51) 51 (52) 62 (15)
Allocation 50% (50%)


Yen currently looks the strongest of the majors. Risk weight picture across timeframes gives us very little to work with. Seeking new direction that isn’t coming. Again we stay risk neutral. No Change.

8 May: Dollar Yen lost a little bit more ground than other dollar fx relation ships due to the perceived industry protection sounds from the Japanses government. Otherwise the technical picture is not clear and looking at daily risk having turned up calls for a slightly higher dollar yen in the next few days. Stay risk neutral with 50% hedge on transaction exposures


GBP/EUR FX live price, Weekly Sterling vs EURO Price Risk Analysis Forecast

(Previous week in brackets)

GBP/EUR LT-M MT-W ST-D
1.1180 (1.1415)
Trend ↓ (↓) ↓ (↓) ↓ (↓)
% Risk
Weight
56 (56) 57 (57) 55 (55)
Allocation 80% (80%)


The only pair where we have taken a stronger view on direction is GBP vs EUR. That still appears to be the correct risk approach. We removed part of the long GBP hedge in March and re-entered in April. That 80% cover should stay as a core position for now.

8 May: We want to remain much more cautious at a time where the UK is having to battle very much on its own. Risk weight turned down in all time frames whilst price remained static around the 1.14 handle. We still see this technical picture as being more vulnerable for GBP and stay with a 80% hedge on GBP receivables


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Posted in A - All Financial Blogs | 2020 Forecast, FX - USD Index, EUR, GBP, YEN | EYEFORGOLD.

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