Foreign Exchange forecast 24 July 2020

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

USD Index	LT-M	MT-W	ST-D
94.35 (96.65)
Trend	↓ (↓)	↓ (↓)	↓ (↓)
% Risk Weight	27 (32)	10 (25)	4 (20)
Allocation	50% (50%)

We remain bearish and cautious on the USD exchange rate folowing a 2 1/2% drop the past twp weeks. All USD Index time frames, incudling hourly, are in oversold territory, yet the same now applies as to other markets that are developing a new direction. For the USd Index to get oversold now requires at least the Medium term Weekly time frame to show bullish divergence. This will be weeks away so any short term correction up for the USD Index will be short lived. We still propose no change to maintaining a perpetual 50% long dollar exposure cover. This is the correct business risk strategy in a situation of substantial forward economic uncertainty.

10 July: All risk weight time frames are down. Little real directional movement the past few weeks with the USD index hovereing between 96.50 and 97.50. Trend down but still uncertain as to possible market freak out or interventions. Only smaller volume msarkets appear to move on their own a bit more like the Oz. No Change keeping dollar long exposures covered at 50% on a continued basis.

EUR/USD	LT-M	MT-W	ST-D
1.1655 (1.1290)
Trend	↑ (↑)	↑ (↑)	↓ (↓)
% Risk Weight	65 (60)	87 (73)	93 (70)
Allocation	50% (50%)

The Euro showed relatively more strength than the USD Index advancing some 3.25% vs USD in the past 2 weeks. The same risk strategy applies here. Keep 50% of budgetted dollar receivables covered forward on a perpetual 6 months basis. If one draws a resistance line across the Euro peaks since 2007, current resistance is at 1.1835. If we break this 3 weeks in a row, the next objective could be in the 1.40 handle as a medium term equilibrium, give or take.

10 July: The broad range the past 5 weeks is between 1.12 and 1.14 and seeking clear direction. LT and MT Trend is up with Daily just turning down. This indicates a pause before a bit further dollar weakness in the near future. From a risk perspective also a continued 50% cover on dollar receivables. On future dollar payables the 50% could be kept closer to spot.

GBP/USD (Cable)	LT-M	MT-W	ST-D
1.2790 (1.2605)
Trend	↑ (↓)	↑ (↑)	↑ (↑)
% Risk Weight	50 (48)	70 (62)	90 (88)
Allocation	50% (50%)

All risk weight time frames are up with Monthly turning up at the neutral 50 level. Cable performed weaker than Euro with just strengthening 1.5%. The same stategy is still deployed keeping 50% perpetual cover on budgetted dollar receivables. Trend resistance since 2007 is at 1.3600.

10 July: Sterling/USD (Cable) showed some strength the past week after ranging erratically between 1.2100 and 1.2700 ending the week June 10 at 1.2600. No change to the hedge policy of 50% is still the better risk approach.

USD/JPY	LT-M	MT-W	ST-D
106.10 (106.80)
Trend	↓ (↓)	↓ (↓)	↓ (↓)
% Risk Weight	55 (57)	21 (27)	29 (55)
Allocation	25% (25%)

The Yen still appears to move with the dollar. A more stable dollar yen therefore may be expected hence a lower risk approach with just a mild 25% forward cover on long dollar/yen exposures in spite of all time frames showing a downtrend. The chart picture with a flag type formation could potentially even develop a higher dollar/yen with a lower dollar index. No Change.

10 July: Even though risk weight is down in all time frames the overall picture is not a hard down for the dollar. We reduced our long dollar receivable hedge to 25% on June 19 and this remains the better risk approach. Limited price movement indicates a potentially weaker yen in coming weeks. This would also mean a weaker yen against most major currencies.

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GBP/EUR	LT-M	MT-W	ST-D
1.0970 (1.1148)
Trend	↓ (↓)	↓ (↓)	↑ (↑)
% Risk Weight	35 (40)	25 (37)	20 (85)
Allocation	80% (80%)

GBP is moving in our direction showing further weakness vs Euro during the past 2 weeks. The recent drop from a short term peak at 1.12 is likely to finish at a lower level. Where we have indicated to expect a sub par level in the future we could pause nearer the recent March lows, but will await the Long term and Medium term risk weight to show intermediate bottoming action. The very long term objective basically follows the historic inflationary trend which indicate a 50 year flatter price channel objective of around 0.9000 and more agressive 20 year price history objective of 0.7800.

10 July: The analysis of 19 June materialized entirely which now means GBP is the weaker currency still. We may look to reduce long GBP cover but not until we see a much lower level closer to the 1.05 handle around the 2020 low thusfar. No Change