2020 Foreign Exchange forecast 27 Febr

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

USD Index	LT-M	MT-W	ST-D
98.52 (99.16)
Trend	↓ (↑)	↓ (↑)	↓ (↑)
% Risk Weight	54 (58)	83 (75)	40 (97)
Allocation	100% (100%)

The Dollar rally that started 31 Dec 2019 around 96.50 peaked on Febr 20 at near par. That par level appears a hard one to break and just this week the index lost 1.5%. Admitting that ST Daily whilst dropping rapidly develops potential bullish divergence, the raw chart gives less certainty due to the recent length of the dollar rally. Without any strong technical evidence to the contrary we continue to argue the same caee, which is that the USD is more likely to come under further pressure. The Covid-19 situation clearly had impact of late, but it should not drive us away from MT and LT indicators that show a pattern of potential weakness. No Change.

Last week: The dollar and the dollar index clearly need to be given space and time to face the reality of a severe correction. Even though it seems like today’s markets are very different from a historic perspective, they are not. What is different is the extension length of trends in contemporary financial culture and risk awareness, or rather lack of it. We may all suffer as a result in due course, so we just try and deploy damage limitation. The process of ending this dollar uptrend is so frustratingly slow that it is hard to play any short term risk weight. The LT monthly however is very likely to show bearish divergence some time in the next 6 months or reverse to continue the downtrend that started in Oct 2019. No Change in remaining fully covered on Dollar receivables against other majors

EUR/USD	LT-M	MT-W	ST-D
1.0980 (1.0830)
Trend	↑ (↓)	↑ (↓)	↑ (↓)
% Risk Weight	33 (28)	15 (18)	55 (4)
Allocation	100% (100%)

The Euro made a new 6 months low against USD at 1.0777 and rallied back fairly strongly by 2% into the current level at 1.0980. All time frames turned up this strengthens our view that the Greenback is at high(er) risk. No Change.

Last week: Euro continued weakness all week and starts to look rather low risk versus high risk USD in all time frames. Even with the continued upward USD pressure we remain on full hedge for dollar receivables

GBP/USD (Cable)	LT-M	MT-W	ST-D
1.2890 (1.3043)
Trend	↓ (↑)	↓ (↑)	↓ (↑)
% Risk Weight	75 (87)	25 (60)	40 (89)
Allocation	100% (100%)

Since our last update on Febr 15 nothing really has changed. Cable is showing strength in weakness. Weak as an individual currency moving against the trend of other major currencies yet showing fairly strong technical support. Even as all risk weight time frames are now in downtrends, those trends are sharper reversals than price indicating bottoming action for GBP. No Change.

Last week: Cable was the odd one out showing good strength against the USD on the back of trade agreements and Boris Johnson losing his Treasurer and thus creating space for even more US style debt funding. So, as all risk weight trends are now up and even with MT Weekly looking to start showing bearish divergence in the next few weeks can but remain fully covered on dollar receivables. No Change

USD/JPY	LT-M	MT-W	ST-D
109.95 (109.85)
Trend	↑ (↑)	↑ (↑)	↓ (↓)
% Risk Weight	48 (44)	70 (60)	30 (81)
Allocation	70% (70%)

Dollar yen was on the same train rallying strongly into the 112 handle before dropping equally strong towards current level at just under 110.00. The Medium Term Weekly timeframe is showing potential bearish price to risk divergence making it look heavy after a six month advance from 105.00. Our 70% hedge against dollar receivables feels like the correct and c onservative balance of risk vs opportunity. No change.

Last week: Dollar Yen is not providing strong indication this week. ST look to turn down whilst MT risk turned up at the same 60 level. The next fortnight must provide clarity on whether to go 100% cover on USD receivables or reduce. No Change for now

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GBP/EUR	LT-M	MT-W	ST-D
1.2035 (1.1755)
Trend	↓ (↑)	↓ (↑)	↓ (↑)
% Risk Weight	82 (87)	62 (60)	40 (93)
Allocation	100% (100%)

Sterling/Euro followed the jojo bunch in this more volatile market of late. The rally from current level into the the 120 handle high was followed by an equally quick drop this week. All time frames turned down from up which supports our analysis that GBP is likelt to remain the weaker of the two for some time to come. Our forecast is to expect GBP to trade below par against Euro within 2 years. Hence a full hedge on a full year Transaction exposure plus if relevant some further risk weight in favor of the Euro on translation and competition risk. These fundamental currency risk exposures should never be traded against at more than 1.5 leverage to a full year exposure, which is still manageable against cost of goods sold.

Last week:Sterling rallied on the back of strong demand into the 1.20 handle and a price range that is likely to show resistance. Risk weight trend is up but at high risk levels. We remain positioned in favor of Euro and a much weaker GBP over the next 6 months