Foreign Exchange 2020 forecast 17-25 January

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

USD Index	LT-M	MT-W	ST-D
97.68 (97.69)
Trend	↓ (↓)	↑ (↓)	↑ (↑)
% Risk Weight	60 (57)	37 (21)	83 (55)
Allocation	100% (100%)

The Dollar Index outlook remains unchanged. As Daily time frame risk weight is moving quickly higher the downside is favoured. No Change.

Last week: Last week’s monthly risk weight was incorrectly shown at 52 which should have been 63 (corrected). As indicated last week a pause in the down trend was expected and also materialized. This uptrend may continue a little while longer but is likely to meet resistance relatively soon again. Across different technical tools the $Index remains both neutral and vulnerable. The latter determines the policy to stay with a full hedge on long dollar transaction risk exposures

EUR/USD	LT-M	MT-W	ST-D
1.1070 (1.1113)
Trend	↑ (↑)	↓ (↓)	↓ (↓)
% Risk Weight	31 (30)	57 (75)	24 (30)
Allocation	100% (100%)

An interesting article from Sovereign Man, hitting the nail on the head regarding the USA using it financial nuclear weapon. It is really as simple as this and and has been so for decades. It will continue until the rest of the West wakes up to this reality. This is what keeps the dollar relatively strong, yet it does not change the technical risk which remains very cautious in relation to USD long positions. The potential for dollar weakness still outweighs the opposite. No Change.

Last week: Euro has shed one point since Year-end and remains in a Long Term uptrend. Weekly risk weight has turned down slightly from a mild high risk level without risk to price bearish divergence. We remain in the full hedge camp as the technical risk of further dollar weakness is still the primary concern

GBP/USD (Cable)	LT-M	MT-W	ST-D
1.3000 (1.3040)
Trend	↑ (↑)	↓ (↓)	↓ (↓)
% Risk Weight	69 (70)	56 (66)	24 (47)
Allocation	100% (100%)

The same outlook applies to Cable. Risk analysis still favors weaker dollar vs GBP although we may still see a bit of cable weakness in the coming week. Not enough to change the general outlook of keeping long dollar exposure covered and which has been our book for 6 months. No Change.

Last week: The Year-end high finish with the general slightly stronger dollar trend since then and ending the first full week of the year at 1.3037. Cable has not reached a serious top in any of the time frames. No Change

USD/JPY	LT-M	MT-W	ST-D
110.20 (109.40)
Trend	↑ (↑)	↑ (↓)	↑ (↑)
% Risk Weight	45 (45)	82 (77)	92 (69)
Allocation	50% (50%)

Our condition to add to our dollar cover has not been met so we remain at 50% cover on long dollar transaction exposure. Risk weight however still leans towards a higher percentage of cover of Daily and Weekly trend turn down. If this happens we will do an early update of this Forex risk blog.

Last week: We got the expected downtrend and subsequent rally after new year. As the Daily trend is still up with fairly neutral Weekly and Monthly risk positions we stay with a 50% transaction risk cover. If Daily rolls into a downtrend and weekly continues down we will likely raise the hedge to 100%

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GBP/EUR	LT-M	MT-W	ST-D
1.1725 (1.1736)
Trend	↑ (↑)	↓ (↓)	↑ (↓)
% Risk Weight	80 (82)	56 (63)	41 (67)
Allocation	100% (100%)

Our 2020 Forecast for GBP/EURO is for the cross to weaken towards par. We can think of 4 or 5 fundamental reasons why this might happen, but the technical picture based on price action over the past 10 years leads to this conclusion. This essentially means keeping a full hedge on Long Sterling transaction exposures for the foreseeable future. Thjere is fairly decent support in the 1,16 to 1,17 range but once that breaks it looks like little support until the 1.07-1.08 level.
Last week: GBP Euro now looks more vulnerable and we raise the hedge against transaction risk exposure to the full 100%. A decision like this can be fine tuned a bit given that the hourly risk is very low. A minor rally on Monday can expected although this type call should best be executed at market i.e Monday morning latest