Foreign Exchange 2020 forecast 24-31 January

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

USD Index	LT-M	MT-W	ST-D
97.88 (97.68)
Trend	↓ (↓)	↑ (↑)	↑ (↑)
% Risk Weight	60 (60)	43 (37)	88 (83)
Allocation	100% (100%)

We stay with the Monthly Long term risk weight trend which is down. We cannot exclude another 1% advance and the dollar looks like it could stay in this price range for a while longer. Full dollar long exposure should remain covered until the LT trend changes in line with ST confirmation. No Change.

Last week: The Dollar Index outlook remains unchanged. As Daily time frame risk weight is moving quickly higher the downside is favoured. No Change

EUR/USD	LT-M	MT-W	ST-D
1.1020 (1.1070)
Trend	↑ (↑)	↓ (↓)	↓ (↓)
% Risk Weight	27 (31)	45 (57)	10 (24)
Allocation	100% (100%)

Main driver of trend is Monthly risk weight which is still in an uptrend albeit a slowing down uptrend. Weekly is down and Daily at a low risk weight level of 10. This could mean dollar strength for a few more weeks but the LT uptrend is still a real and too significant risk of dollar weakness ahead. No change.

Last week: An interesting article from Sovereign Man, hitting the nail on the head regarding the USA using it financial nuclear weapon. It is really as simple as this and and has been so for decades. It will continue until the rest of the West wakes up to this reality. This is what keeps the dollar relatively strong, yet it does not change the technical risk which remains very cautious in relation to USD long positions. The potential for dollar weakness still outweighs the opposite. No Change

GBP/USD (Cable)	LT-M	MT-W	ST-D
1.3065 (1.3000)
Trend	↑ (↑)	↓ (↓)	↑ (↓)
% Risk Weight	70 (69)	55 (56)	55 (24)
Allocation	100% (100%)

Cable needs to confirm strength in coming days and maybe weeks in order for us to maintain a strong outlook for Sterling vs USD. No change for now as the LT trend still looks to remains firm.

Last week: The same outlook applies to Cable. Risk analysis still favors weaker dollar vs GBP although we may still see a bit of cable weakness in the coming week. Not enough to change the general outlook of keeping long dollar exposure covered and which has been our book for 6 months. No Change.

USD/JPY	LT-M	MT-W	ST-D
109.25 (110.20)
Trend	↑ (↑)	↑ (↑)	↓ (↑)
% Risk Weight	45 (45)	79 (82)	75 (92)
Allocation	50% (50%)

Dollar was weak during the recent review period but not enough to warrant an increase in cover. We stay at 50% cover on long dollar transaction risk. Very short term we could see a small rally of $/Yen towards the upper 109 handle. No Change.

Last week: Our condition to add to our dollar cover has not been met so we remain at 50% cover on long dollar transaction exposure. Risk weight however still leans towards a higher percentage of cover of Daily and Weekly trend turn down. If this happens we will do an early update of this Forex risk blog.

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GBP/EUR	LT-M	MT-W	ST-D
1.1855 (1.1725)
Trend	↑ (↑)	↓ (↓)	↑ (↑)
% Risk Weight	83 (82)	58 (63)	82 (41)
Allocation	100% (100%)

The current uptrend in this cross looks very much like a normal and soon finishing price reverse reaction to the downtrend that started in December at 1.2100. We see GBP eroding over a long periof of time once the LT Monthly trend turns down from the present 80+ risk level. No Change to remain fully hedged against GBP receivables.

Last week: Our 2020 Forecast for GBP/EURO is for the cross to weaken towards par. We can think of 4 or 5 fundamental reasons why this might happen, but the technical picture based on price action over the past 10 years leads to this conclusion. This essentially means keeping a full hedge on Long Sterling transaction exposures for the foreseeable future. Thjere is fairly decent support in the 1,16 to 1,17 range but once that breaks it looks like little support until the 1.07-1.08 level