2020 Foreign Exchange forecast 13 March

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

USD Index	LT-M	MT-W	ST-D
98.70 (96.10)
Trend	↑ (↓)	↓ (↓)	↑ (↑)
% Risk Weight	55 (45)	50 (60)	60 (10)
Allocation	100% (100%)

The dollar index, did it again. No the speculators did. Are they right? Of course not! The inde atsrated with a gap opening down towards 95.50 and then gapped up a few times into the Friday 13 close at 98.70. Those gaps will be filled and soon at that. Stay fully covered on long dollar receivables. As the slowdown in worlds markets unfolds more rapidly, the dollar function as World Reserve Currency means very little. This is no longer about making money, which it has been for 50 years. This is about realizing that ultimately, there is no free lunch and maybe health in ‘every’ aspect should be of more concern. That is why we said on the Precious metals blog that Thomas’ Piketty prayers have been heard. Is humanity going to understand the ‘better balance’ message we get from Nature? Let’s hope so. No change.

Last week: No Change. Stay fully covered on dollar receivable exposure. The USD is behaving as expected from the technical picture. Given the circumstance, exposures are no longer limited to transaction exposures budgetted purchases and sales. Economic risk becomes an issue and the question for CFO’s is how to measure that risk and position in a way to stem the tide, at least for a while.

EUR/USD	LT-M	MT-W	ST-D
1.1100 (1.1300)
Trend	↑ (↑)	↑ (↑)	↓ (↑)
% Risk Weight	35 (42)	52 (40)	60 (91)
Allocation	100% (100%)

The total 8% percent up and down range over 10 trading days shows the kind of risk businesses have with their foreign exchange exposure. Primary focus should even be more on economic risk if there’s still a risk to be protected. Trade wars and major budgetted currency risk will quickly become meaningless as trade activity simply drops by double figures. Risk weight anaylis still favors a fully hedged dollar receivable. No Change.

Last week: No Change. Stay fully covered on dollar receivable exposure. Even with daily risk overbought this trend is more likely to develop one or several bearish divergence with higher to much higher Euro price level vs the greenback.

GBP/USD (Cable)	LT-M	MT-W	ST-D
1.3050 (1.3050)
Trend	↓ (↓)	↑ (↑)	↑ (↑)
% Risk Weight	70 (70)	24 (24)	75 (75)
Allocation	100% (100%)

Cable is showing potential bullish divergence across time frames. Clearly the March 11-13 drop was fierce and larger than expected, but it does not violate the prudent risk approach that we’ve been taking for quite some time. The Long Term dollar downtrend that started in Oct 2019 still has not finished its course in our risk analysis model. We do see sterling weaker against Euro but as time goes by Cable will recover into new one year highs. No Change.

Last week: No Change. Stay fully covered on dollar receivable exposure. Cable is likely to be less strong relatively, but will follow the main US trend down. At least this is the picture at this moment and we see no reason to do otherwise.

USD/JPY	LT-M	MT-W	ST-D
107.80 (105.00)
Trend	↓ (↓)	↓ (↓)	↓ (↓)
% Risk Weight	35 (35)	45 (45)	5 (5)
Allocation	100% (70%)

The Monay opening showed a gap as expected dropping into the 101.000 handle rapdily before filling the gap inside 36 hours. The week ended strong for the dollar like against all other major currencies at 107.80. Looking at the risk weight positions in different time frames the prudent action is now to become fully covered on dollar receivables or yen payables. This could well means that no further hedging is required due to a slow down in business orders or if there is no slow down to increase the dollar hedge to 100% on Monday March 16.

Last week: Dollar yen has returned to weakness as expected yet could return into consolidation upon a gap opening on Monday March 9. For now we stay with a recommendation of 70% cover on Yen payables.

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GBP/EUR	LT-M	MT-W	ST-D
1.1030 (1.1528)
Trend	↓ (↓)	↓ (↓)	↓ (↑)
% Risk Weight	65 (72)	20 (40)	5 (15)
Allocation	50% (100%)

GBP strong weakness in the latter half of last week has created somewhat of an uncertainty. In our view this move has accelerated more than usual with a very likely bullish divergence developing in the Daily time frame. A treasurer could arguably take some off the table and reduce the hedge to 50% with a view to re-enter in due course. The reason is that a slowdown in world trade will cause the economies of the UK and other major trading partners to level down and naturally requiring less currency adjustment in the short term. So, 50% GBP receivable cover to be taken off the book on Monday morning at very limited MT risk.

Last week: No Change. Stay fully covered on GBP receivable exposure versus Euro. We expect multiple bullish divergences between shorter and longer term timeframes as GBP suffers from further weakness whilst experiencing the usual volatility. Historic GBP weakness has been known to be quick. As this market is now in a LT downtrend, in our view, maximum cover is the lower risk wisdom