2020 Foreign Exchange forecast 23 March

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

USD Index	LT-M	MT-W	ST-D
102.47 (98.70)
Trend	↑ (↑)	↑ (↓)	↓ (↑)
% Risk Weight	62 (55)	65 (50)	98 (60)
Allocation	100% (100%)

In spite of the extremely volatile move in favor of the dollar this past week the Greenback looks still very vulnerable. In fact it looks like a paper market driven event that is as rediculous as paper Gold and Silver being shot in the foot. This dollar level simply cannot hold both technically and fundamentally, the latter becoming more relevant signalling much caution due to the unprecedented monetary support. Given the very strong potential of bearish divergence confirmation in the LT Monthly and MT Weekly time frames any US dollar receivables must be fully covered. There is one caviat that companies will need to consider without remorse; Uncover that part of a hedge that is not required due to a lower expected exposure. For some very large companies this may be a treasury issue and we would be totally happy to wait for the index to drop at least 5% before making that move. No Change.

Last week: The dollar index, did it again. No the speculators did. Are they right? Of course not! The index started 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

EUR/USD	LT-M	MT-W	ST-D
1.0745 (1.1100)
Trend	↓ (↑)	↓ (↑)	↓ (↓)
% Risk Weight	28 (35)	30 (52)	7 (60)
Allocation	100% (100%)

The moves we have seen this past week into today is not even close to the kind of volatility seen in the 70’s and 80’s. Yet this is a whipsaw market for speculative traders. Important is the technical picture in the MT Weekly timeframe showing a bearish divergence 3 weeks ago and now building a bullish divergence. Also the LT Monthly time frame is building bullish divergence coming from the the Oct 2019 low that we considered to be the real market reaction bottom for Euro’s. The January 2017 bottom at 103.40 has held and we would expect this to hold given the risk weight position of all time frames. Remain fully hedged and just take out an overexposed cover due to transaction volume adjustment at some point in the future first waiting for the Euro to strengthen first. This is a low risk position in our view. No Change.

Last week: 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

GBP/USD (Cable)	LT-M	MT-W	ST-D
1.1600 (1.2255)
Trend	↓ (↓)	↓ (↓)	↓ (↓)
% Risk Weight	55 (60)	8 (18)	7 (17)
Allocation	100% (100%)

In last week’s turmoil we did not update the above risk weight figures for March 13 which is now adjusted. Last week’s comment below was as intended fo March 13.
This week is no different. Cable still looks to develop bullish divergence and is likely to follow the overall dollar trend which we expect to be down. The 11% drop since the March 09 high may have (nearly) run its course. Except for lightning up the position to allow for lower transaction volume long dollar receivables should remain fully covered. The risk against cost of goods sold and bottom line is typically manageable. Arguably the call for Cable has been early looking at the extreme move during the past three weeks. The high risk US dollar technical picture does not change. This is a corporate risk approach not a short term speculative risk approach. No Change.

Last week: 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

USD/JPY	LT-M	MT-W	ST-D
111.20 (107.80)
Trend	↑ (↑)	↑ (↑)	↑ (↑)
% Risk Weight	53 (35)	65 (45)	93 (40)
Allocation	100% (100%)

Dollar Yen gives no different risk weight picture than other major currencies and probably looks a little weaker technically. If Japan reovers more quickly from the Corona pandemic, which it now may do, the Yen could develop a stronger price against most other major currencies. No Change.

Last week: The Monday 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

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GBP/EUR	LT-M	MT-W	ST-D
1.0720 (1.1030)
Trend	↓ (↓)	↑ (↓)	↑ (↓)
% Risk Weight	65 (65)	12 (20)	20 (5)
Allocation	50% (50%)

GBP risk weight remains low and having taken 50% of the position off the table following a strong decline last week we feel comfortable with a 50% hold. No Change.

Last week: 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