Foreign Exchange forecast 27 May 2020

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

USD Index	LT-M	MT-W	ST-D
98.80 (100.36)
Trend	↓ (↑)	↓ (↑)	↓ (↑)
% Risk Weight	50 (54)	57 (58)	25 (80)
Allocation	50% (50%)

This week the USdollar index turned down in all time frames and now trades at the low end of that 10 week 2% trading range. Since the 1980’s the borad support level is around 80 and the resistance at 120. We have been smack in the middle for quite a while and we still believe the technicals point towards further weakness. Several important market narratives however sees a huge bull for the dollar as the USA has a stranglehold of foreign US Dollar debt. The longer it takes for the dollar to develop a stronger downtrend following the 2008-2016 primary cycle advance, sentiment could turn bullish again. Until our technical tools signal either way, the least risk remains a 50% cover on transaction risk exposure. No Change.

15 May: Last week the risk trends for Dollar Index were down across most time frames. This week they are up. The USD Index looks pretty directionless with technical tools being inconclusive as well. Flat with medium risk levels. The fundamental narrative based on Debt Deflation woes leans very much to a much stronger dollar. But as major world currencies can no longer seek direction from interest rates and fiat currencies are available without limitation it seems harder every week to make a call that limits FX risk. Speculators still play these markets in full force. FX is the largest financial market on trading volume. It therefor offers massive liquidity. The best risk position is a neutral one with 50% weight on any exposure

EUR/USD	LT-M	MT-W	ST-D
1.1020 (1.0814)
Trend	↑ (↓)	↑ (↓)	↑ (↓)
% Risk Weight	40 (35)	30 (28)	70 (25)
Allocation	50% (50%)

The Euro turned up this week in all time frames following the general dollar direction change to lower. The same reasoning applies as for the dollar Index itself. Although the Euro shows even more strength and potential to reach the March highs of 1.1500. Resistance through 4 tops starting 2007 is at 1.1900. We stay with 50% cover until further evidence show a clearer way forward.

15 May: This undecided market has difficulty breaking away from the steady Euro downtrend over the past 2 years. Risk weight levels and direction still favor a weaker dollar. One month we trade near the highs of the past year and the next nearer the lows within broadly a 4% price channel. We stay on neutral risk ground with just a 50% cover on dollar receivables.

GBP/USD (Cable)	LT-M	MT-W	ST-D
1.2314 (1.2095)
Trend	↓ (↓)	↓ (↓)	↑ (↓)
% Risk Weight	50 (47)	44 (50)	45 (8)
Allocation	50% (50%)

Only our daily time frame risk weight turned bullish this week. GBP short term strength therefore has a lower confirmation level. Yet our Weekly time frame has potential to turn up again following the March bulish intermediate divergence break to a low of 1.1400. Otherwise long dollar transaction exposures should remain covered at 50% until better signals of primary trend direction become visible.

15 May: GBP is the weakest currency of the majors and again lost a bit more ground this past week. Short term daily gets oversold and the technical risk weight continues to favor a longer term uptrend for cable, i.e a weaker dollar. Neutral risk means 50% over only on transaction exposures.

USD/JPY	LT-M	MT-W	ST-D
107.80 (107.00)
Trend	↑ (↑)	↑ (↓)	↑ (↓)
% Risk Weight	53 (52)	55 (51)	78 (62)
Allocation	50% (50%)

Dollar yen, as it often does, is not moving in tandem with the other major dollar pairs and the technical outlook is not clear either even though all risk weight time frames are pointing up. The best strategic position is to remain at 50% cover as international pricing will adjust to allow compensation for a much weaker yen if that were to happen.

15 May: Yen currently looks the strongest of the majors. Risk weight picture across timeframes gives us very little to work with. Seeking new direction that isn’t coming. Again we stay risk neutral. No Change

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GBP/EUR	LT-M	MT-W	ST-D
1.1170 (1.1180)
Trend	↓ (↓)	↓ (↓)	↑ (↓)
% Risk Weight	53 (56)	45 (57)	20 (55)
Allocation	80% (80%)

GBP technically still shows the weakest hand although the daily short term time frame has turned up. With Medium and Long term still in a down trend our focus is still for a weaker GBP vs Euro. Sentiment more in favor of GBP can change of course but fundamental indicators are not looking good for the UK economy outside of Europe. We stay with our 80% cover on long GBP transaction exposures.

15 May: The only pair where we have taken a stronger view on direction is GBP vs EUR. That still appears to be the correct risk approach. We removed part of the long GBP hedge in March and re-entered in April. That 80% cover should stay as a core position for now