2020 Foreign Exchange forecast 8 March

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

USD Index	LT-M	MT-W	ST-D
96.10 (98.52)
Trend	↓ (↓)	↓ (↓)	↑ (↓)
% Risk Weight	45 (54)	60 (83)	10 (40)
Allocation	100% (100%)

No Change. Stay fully covered on dollar receivable exposure. The USD is behaving as expected from the technical picture. Given the circumstance, exposures are no longer limited to transaction exposures budgetted purchases and sales. Economic risk becomes an issue and the question for CFO’s is how to measure that risk and position in a way to stem the tide, at least for a while.

Last week: 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

EUR/USD	LT-M	MT-W	ST-D
1.1300 (1.0980)
Trend	↑ (↑)	↑ (↑)	↑ (↑)
% Risk Weight	42 (33)	40 (15)	91 55)
Allocation	100% (100%)

No Change. Stay fully covered on dollar receivable exposure. Even with daily risk overbought this trend is more likely to develop one or several bearish divergence with higher to much higher Euro price level vs the greenback.

Last week: 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

GBP/USD (Cable)	LT-M	MT-W	ST-D
1.3050 (1.2890)
Trend	↓ (↓)	↑ (↓)	↑ (↓)
% Risk Weight	70 (75)	24 (25)	75 (40)
Allocation	100% (100%)

No Change. Stay fully covered on dollar receivable exposure. Cable is likely to less strong relatively, but will follow the main US trend down. At least this is the picture at this moment and we no reason to do otherwise.

Last week: 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

USD/JPY	LT-M	MT-W	ST-D
105.00 (109.95)
Trend	↓ (↑)	↓ (↑)	↓ (↓)
% Risk Weight	35 (48)	45 (70)	5 (30)
Allocation	70% (70%)

Dollar yen has returned to weakness as expected yet could return into consolidation upon a gap opening on Monday March 9. For now we stay with a recommendation of 70% cover on Yen payables.

Last week: 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 conservative balance of risk vs opportunity. No change

---

GBP/EUR	LT-M	MT-W	ST-D
1.1528 (1.2035)
Trend	↓ (↓)	↓ (↓)	↑ (↓)
% Risk Weight	72 (82)	40 (62)	15 (40)
Allocation	100% (100%)

No Change. Stay fully covered on GBP receivable exposure versus Euro. We expect multiple bullish divergences between shorter and longer term timeframes as GBP suffers from further weakness whilst experiencing the usual volatility. Historic GBP weakness has been known to be quick. As this market is now in a LT downtrend, in our view, maximum cover is the lower risk wisdom.

Last week: 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