2020 Forex forecast for 27 March – Change of position

2020 Foreign Exchange forecast 27 March


USdollar Index Weekly Dollar Index Price Risk Analysis Forecast

(Previous week in brackets)

99.44 (102.47)
Trend ↑ (↑) ↑ (↑) ↓ (↓)
% Risk
54 (62) 55 (65) 55 (98)
Allocation 50% (100%)

Conclusion: All Dollar risk positions to be reduced to 50% with immediate effect. Just execute. In a matter of months, the world has changed and our risk assessment must be based on a more holistic approach to managing currency risk. Things are not equal and many businesses large and smaller cannot safely predict an accurate transaction exposure as economic risk has become such an unpredictable element. The still unprecedented but expected ‘QE to infinity’ will make currency risk management probably less relevant during the coming 12 months or longer, because the whole space is changing and everyone in is survival mode. We see a clear change for instance in the Dollar Swiss with the possibility that the CHF which has been the strongest currency of all for the past 50 years may even start to weaken. What may trigger this is unknown but technically we can see signs in that direction. Explore the USDCHF chart below and draw your own conclusion. (published on 27 March 13:24 CET; individual currency pair analysis below will be updated shortly)

23 March: 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.

EUR/USD FX live price, Weekly EURO vs US Dollar Price Risk Analysis Forecast

(Previous week in brackets)

1.1000 (1.0745)
Trend ↑ (↓) ↓ (↓) ↑ (↓)
% Risk
35 (28) 38 (30) 35 (7)
Allocation 50% (100%)

Reduce expected long dollar transaction exposure by 50% to half. Our preference from a technical risk weight perspective looking at our set of tools, with more uncertainty than ever and with much intervention from central banks, is to weather the storm until dust settles. The storm in fact may not even have begun. The huge debt burden which is now being created out of thin air, where European tax payers (especially Germany and The Netherlands) will have to foot the bill for servicing a future recovery of the hardest hit countries (Italy, Spain and others), makes it extremely difficult to predict an outcome that can be measured in fiat currency. We would almost say that risk right now should be covered partially against real money, gold and silver, but that now seems a difficult choice too because cover must be taken through paper derivatives which are likiely to become decoupled from physical if that hasnt already happened in the past few weeks. The world we have created during the past 50 years is no longer that same world which means that any perceived potential risk must be taken off the table.

March 23: 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

Cable GBP/USD FX live price, Weekly Sterling vs USDollar Price Risk Analysis Forecast

(Previous week in brackets)

1.2250 (1.1600)
Trend ↓ (↓) ↑ (↓) ↑ (↓)
% Risk
65 (55) 17 (8) 35 (7)
Allocation 50% (100%)

Conclusion: Reduce Long dollar transaction exposures to 50%. This follows the general underlying risk from an unpredictable outcome of a necessary reset of the financial system as we know it today (Also read our Precious metals section). What happens to Fiat currency worldwide is anyone’s guess in this war against a potential worldwide economic depression. In terms of currency risk there is much more below the surface that could impact how individual economic blocks will or can perform in the aftermath of the present general slowdown.

23 March: 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.

USD/JPY FX live price, Weekly USdollar vs Japanese Yen Price Risk Analysis Forecast

strong>(Previous week in brackets)

108.80 (111.20)
Trend ↑ (↑) ↑ (↑) ↓ (↑)
% Risk
48 (53) 57 (65) 82 (93)
Allocation 50% (100%)

We generally recommend a reduction of USD receivables exposure cover by 50% until the dust of this massive international turmoil settles. This pair also is too volatile to allow for a decisive risk management approach and the technical picture changes almost weekly due to these wild price girations.

23 March: 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

GBP/EUR FX live price, Weekly Sterling vs EURO Price Risk Analysis Forecast

(Previous week in brackets)

1.0720 (1.0720)
Trend ↓ (↓) ↑ (↑) ↑ (↑)
% Risk
70 (65) 17 (12) 45 (20)
Allocation 50% (50%)

We already took out some lomng GBP exposure cover 2 weeks ago at a favourable level and the transaction hedge recommendation on GBP receivables remains at 50%. Subject to a different outlook due to limited activity for certain cyclical companies who might want to just transact at spot as required.

23 March: 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.

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