Foreign Exchange forecast 24 April 2020. Is fiat currency dead?

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

USD Index	LT-M	MT-W	ST-D
100.29 (99.53)
Trend	↑ (↑)	↑ (↓)	↑ (↑)
% Risk Weight	55 (54)	60 (60)	73 (43)
Allocation	50% (50%)

The currency markets show lackluster performance within a less than 2% range over the past 4 weeks. The spell of strong swings that started in march took 2 weeks to calm down. Due to increased uncertainty and total lack of consumer confidence it is hard for international businesses to even begin to understand where, how or even ‘if’ this will end anytime soon. Fiat currency is dead in our view and the only solution is an out of the box well crafted redesign of our monetary system. Technical analysis tools will still show the way but short term events are extremely disruptive and can or will turn opinion and direction in a matter of hours or even minutes. The Long term technicals still look very vulnerable for the greenback, but one tweet or mainstream media suggestion can turn markets upside down without warning. We gently stay with a good practice risk management approach by covering exposures at 50%. The only exception being GBP as discussed below.

Previous 13 April: Daily risk narrowly trending up. Weekly turned narrowly down and Monthly narrowly down still. As All major asset classes fare now entirely under central bank sovereign control, short term events, as directed by these same central banks, can turn risk upside down and vice versa the next day or week. The FX market as a whole will become harder to forecast which proves the case for our current hedge strategy. The Inxdex shows gaps up to 102.50 and down to 95.00. Surely they will both be filled over the coming month, although the upper end of this range had an outside set of gaps both going up and down around March 20. It looks like the dollar may settle more in the 97-100 range in coming weeks

EUR/USD	LT-M	MT-W	ST-D
1.0819 (1.0925)
Trend	↓ (↑)	↓ (↓)	↓ (↓)
% Risk Weight	35 (36)	30 (24)	25 (48)
Allocation	50% (50%)

The April triangle price formation, as clearly visible in the daily chart, looks like it wants to reverse the recent dollar uptrend. As all time frames are down this is not a moment to speculate but stay with a 50% risk cover on dollar long transaction exposures. especially in alternative media there is a battle going as to why the dollar should remain strong and as promoted by the US government or at least the President. Unfortunately we do not have enough reliable data where the balance of currency power lies. What we do know is that the USA is not in any better shape of managing its budget than Europe. We envisage a Corona plan that can return trust in our monetary system which we discuss in our Precious metals blog.

Previous 13 April: The Monthly trend turned mildly up at the beginning og this week, but the Weekly is shwowing a downtrend at a level that ingnites strong bullish divergence if this trend changes direction. As there are no strong signals at this moment like divergences between time frames this market is hard to predict. We continue to lean towards a weaker dollar but continued verbal and active manipulation of the FX markets anmd well as a very uncertain economic outlook makes our hedge proposal the safest option. No Change.

GBP/USD (Cable)	LT-M	MT-W	ST-D
1.2350 (1.2485)
Trend	↓ (↓)	↑ (⇈)	↓ (↑)
% Risk Weight	50 (55)	55 (50)	40 (95)
Allocation	50% (50%)

The market is beginning to notice how badly the UK is affected by the relatively slow introduction of lock down measures and how the present situation uncovers real poverty in England. Great Britain outside the European Union whilst still a paying member (for how long?) is in very poor shape. Gordon Brown’s extensive detachment from Gold reserves at near 20 year historic lows can and probably will prove to be one of the biggest risk management mistakes and may put the UK in rearguard recovery action fight. Cable may still do a little better than the USdollar but this is one to watch. No Change.

Previous 13 April: GBP is trading at the highs of a 4 week range, holding its own in a market drawn by the health of Prime minister Boris Johnson, the reality of Brexit and the possible consideration of another postponement plus a major and later ingnition of the corona virus spread. Holding on to 50% cover is a low risk strategy. Hopefully within 4 to 6 weeks we can see light at the end of the tunnel and who knows what the world looks like at that time. No Change

USD/JPY	LT-M	MT-W	ST-D
107.45 (107.95)
Trend	↑ (↑)	↓ (↓)	↓ (↓)
% Risk Weight	50 (50)	60 (64)	32 (30)
Allocation	50% (50%)

Japan is reducing its economic exposure to China and the countries huge debt is largely an internal exposure. A $5.5 Trillion economy with 126 million population and a public debt at 200% is in itself frightnening but as it is largely financed by the Japanese tax payer the effects of a monetary reset, if that happens, are yet to be discovered. Japan’s 765 tonnes of gold reserves are not nearly enough to reduce the debt to gdp ratio to a normal level if the currency depreciates along the numbers projected for Europe and the USA. But maybe it will suffice with a policy of robbing Peter to pay Paul if Japan devalues by the same margin as other major fiat currencies. The whole situation is very uncertain and until we start seeing some major shifts in consumer behavior, corporate and government policy business models, we cannot be but very careful in our currency risk management approach. No Change.

Previous 13 April: Dollar yen, same story. Not a good time to speculate or develop very strong views on direction. Technically there is no clear signal available, NO divergences in individual timeframes or between time frames. Stochastic, MACD and RSI all middle of the road. Likely to stay in a 5% range until the market gets a better feel for world trade activity. No Change

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GBP/EUR	LT-M	MT-W	ST-D
1.1396 (1.1430)
Trend	↓ (↓)	↑ (↑)	↑ (↓)
% Risk Weight	60 (60)	54 (52)	55 (90)
Allocation	80% (80%)

The past week saw a decent 1,5% drop in the GBP/EUR rate, a subsequent inexplicable 1% rally followed by an end of the week price settlement that is marginally lower at just under the 1.1400 handle. In our view the UK is in a fight for Long term survival which they will probably manage, but it may be painful along the ride. We must remain very cautious and prefer to stay with a strong hedge on any, more limited perhaps, exposure of GBP receivables. No Change at 80% cover.

Previous 13 April: Change position to 80% cover on Long GBP transaction exposures. The down trend in Monthly time frame plus a continued overbought level of Daily calls for some action. There is clearly a much higher technical risk for a downward correction again following the rally that started on 19 March. Due to a generally lower expected trade volume the exposure should be covered from 50% to maximum 80% of budget risk right now