2020 Forex Forecast | 19 June

Foreign Exchange forecast 19 June 2020

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
97.66 (96.95)
Trend ↓ (↓) ↓ (↓) ↑ (↑)
% Risk
Weight
40 (40) 28 (45) 60 (6)
Allocation 50% (50%)


Some of the most highly regarded economists and financial market analysts are individually voicing strong opposing views for a vastly stronger or weaker dollar in the coming year. These opposite narratives influence risk management strategies and essentially proves the point how manipulated this market is by major governments and central banks. The intervention forces are hidden behind walls where credit lines are still available between major banks. This keeps the market liquid and floating. Interest rates no longer play a role in managing the value of a currency. The technical case still leans towards a weaker dollar but anything can happen. Our risk strategy is best left unchanged keeping a permanent 50% of an average expected exposure dollar receivables covered forward. Unless we see as major shift in the technical picture a percent or so up and down is no reason for an immediate update of this forecast.

27 May: The index lost 1.5%, which was minimized by the weakness of the Yen but it shows a trend that is still in force. Given the size of the relatively determined direction down since 3 weeks, we should see some bullish divergence in the daily risk weight before a bear market rally or reversal is expected. We would say another 2% in to the high 94 handle is quite likely over the next few weeks. No Change in exposure management risk policy in keeping 50% long dollar exposure covered.

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
1.1165 (1.1278)
Trend ↑ (↑) ↑ (↑) ↓ (↓)
% Risk
Weight
45 (50) 54 (43) 40 (91)
Allocation 50% (50%)


We want to see a clean break of the 12 year downsloping resistance line, now at 1.1860, in order to confirm longer term dollar weakness and only if supported by a strong risk weight trend in favor of the Euro. The technical picture is trending down short term and up medium and long term. This favors the short term elastic to be drawn upward again and favors a stronger Euro in the next several weeks following a bottom formation at or just below the current level. No Change in keeping 50% of dollar receivables covered forward.

27 May: Most market analysts are mistified. What’s the future of the petrodollar? Will Europe manage to hold it together? Isn’t the real pandemic an economic one, with debt having spread everywhere and rising rapidly? As the Euro has gained 2%, or rather the dollar has lost 2%, more or less, across international trading boards, the technical scenario today is bullish for EUR. Especially the Longer term time frames look firm again for the Euro, but with trade liquidity still lacking pace it will be hard to predict a level in three or 6 months time. Right now the Euro looks to build momentum for a move towards the peak resistance line at around 1.1850. We hold our continued 50% receivables cover on long dollar risk. If the dollar makes a final break, up or down, the market will adjust itself as it always has, via trade negotiation and or protectionist measures. 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
1.2320 (1.2640)
Trend ↓ (↑) ↑ (↑) ↓ (↓)
% Risk
Weight
48 (52) 62 (50) 35 (92)
Allocation 50% (50%)


GBP has shown more volatility than other currencies vs USDollar. Risk weight still looks a little suspect to the down side shorter terem whilst long term is seeking direction in neutral territory. Same strategy to maintain a 50% cover on long dollar exposures.

27 May: GBP was also stronger in spite of or even thanks to Brexit worries. Covid has hit the UK harder in Europe than all other countries of size except Belgium. The same dollar strategy applies. It is just right to have about 50% long dollar risk cover for the time being


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
106.75 (109.45)
Trend ↑ (↑) ↓ (↑) ↓ (↑)
% Risk
Weight
54 (56) 56 (62) 12 (92)
Allocation 25% (50%)


Yen again followed a 180 degree path against the dollar index trend causing the Yen to rally versus all other currencies. Given the risk weight getting to oversold and nearing an important support area at 106.00 this is an opportunity to reduce dollar cover a little quicker by 25% to 25%. The anticipation of a weaker yen in months to come is driven by the wild fluctuations during the last 3 weeks which are not typical for a currency that deserves strong support. Hence a strategy to allow for this currency pair to settle and cover largely on spot basis.

27 May: Dollar Yen, as mentioned last week did the opposite again and rallied 1.5% against the general dollar downtrend. The reason can be found in further monetary accommodation on an already stretched 250% debt to GDP ratio. All risk weight trends are up and Japan would not mind seeing a weaker Yen to stimulate exports and compete with the Chinese. Because of the technical behavior and fundamental uncertainty we would favor letting the 50% long dollar cover being absorbed by the actual spot movements and run down this position for the next three months to around 20-25%. The forecast trend therefore is one of a developing weaker yen in international fx markets


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
1.1045 (1.1213)
Trend ↓ (↓) ↑ (↑) ↓ (↓)
% Risk
Weight
45 (48) 55 (45) 30 (53)
Allocation 80% (80%)


Short term GBP may bottom for a temporary trading run against the Long term trend. Medium term risk weight is neutral and currently up but coould as easily turn down again and help push GBP in to support at the 105 handle. If that happens and risk weight is very low we may switch from 80% cover to NO cover temporarily. For now the very long term chart image and tools favor a continuation of that very long term trend of Sterling devaluations. No Change.

27 May: A 40 year down trend was temporarily paused for 3 years and looking at that 40 year trend we expect another 20 cent drop of GBP vs Euro over the next 3 or 3 years. The technicals are not strongly pointing in that direction but they certainly do not oppose this (strong) possibility. Quite funny looking back at the 1992 devaluation of GBP, more or less at the end of a primary Sterling down move. The term ‘whatever it takes’ wasn’t invented yet and the BoE could be and was broken by pure market speculators like Soros Quantum fund. GBP’s move in March 2020 wasn’t much smaller than the devaluation move in September 1992. Maybe it’s in the air, but something says a wave of interest rate moves may be in the making. ‘Whatever it takes’ can only lasts as long as the strongest House of Cards and in every House of Cards there is a unforeseen element of weakness. No Change


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

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