23 October 2020 | Currency update | US Dollar continues downtrend

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

USD Index	LT-M	MT-W	ST-D
92.75 (93.72)
Trend	↓ (↑)	↓ (↓)	↑ (↓)
% Risk Weight	10 (12)	30 (34)	18 (55)
Allocation	70% (70%)

23 October: The corrective pattern during the past 2 months appears to now decided to continue the primary downtrend that started in March 2020. Even if the correction continues and we see another dollar rally, say following the Nov 3 elections, last week’s 1% drop in the index is already setting a tone for a new 2020 low. We maintain our medium term outlook purely based on technical grounds. Since there are few fundamental grounds to rely on in this manipulated monetary environment. No Change. Keep 70% dollar risk covered, perpetually.

16 October: Very little change during the past two weeks and with dollar looking primarily weak in medium term risk weight. We still target the 2018 low around 88.50. As mentioned in our Gold update, the IMF has come out with a statement for a Bretton Woods style action on monetary reform. That leads to the question why this statement now and is it already based on wide consensus between the financial gatekeepers of advanced economies? Or is there no consensus and can we look forward to an unprecedented protection lead fiat currency war between West and East for instance.
This sounds like a very high risk situation, but must follow existing economic transaction risk rules for the time being. Hence no change.

EUR/USD	LT-M	MT-W	ST-D
1.1860 (1.1712)
Trend	↑ (↓)	↑ (↑)	↑ (↓)
% Risk Weight	88 (86)	67 (65)	81 (50)
Allocation	70% (70%)

23 October: The Euro, being the largest contibutor to the Dollar index of course shows the same technical picture. All risk weight trends are up and currently approaching higher risk ranges, but until we see MT and LT divergences between risk and price we follow the trend and must remain on defense against further dollar weakness, hence at least 70% dollar receivables covered forward.

16 October: The EUR uptrend ag USDollar that started in March doesn’t seem finished by a long shot. Yes, we will likely see more volatility as the US elections get nearer. The only real feedback is from our technical indicators and they show consolidation before another round of dollar weakness. lowest management risk on trade flows therefore calls for a no change on the 70% perpetual hedge on forward dollar receivables.

GBP/USD (Cable)	LT-M	MT-W	ST-D
1.3040 (1.2905)
Trend	↑ (↑)	↑ (↑)	↑ (↓)
% Risk Weight	79 (78)	51 (50)	70 (60)
Allocation	50% (50%)

23 October: We stay cauutious in any relation to GBP. The country owns too little gold, has the worst economic data in the western world and even with a Brexit deal needs to recover. This will take a virtual devaluation like in the 80’s, hence just a perpetual dollar receivable risk cover of just 50%.

16 October: GBP still looks the weaker USD related currency, hence no change in maintaining a 50% perpetual hedge on longer dollar transaction exposures.

USD/JPY	LT-M	MT-W	ST-D
104.70 (105.33)
Trend	↓ (↓)	↓ (↑)	↓ (↓)
% Risk Weight	40 (41)	35 (33)	25 (30)
Allocation	50% (50%)

23 October: Dollar Yen only dropped 1/2% not confirming general dollar weakness. Japan also has little gold reserves compared to GDP and like the UK has become even more vulnerable to currency weakness, even against US dollar. The technical picture is not supporting a strong hedge against dollar receivables, hence just a low risk 50% cover.

16 October: The Yen looks more in search of direction and technically behaves on a par with the dollar index. Broad risk calls for no more than 50% currency hedge.

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GBP/EUR	LT-M	MT-W	ST-D
1.0995 (1.0995)
Trend	↓ (↓)	↑ (↑)	↓ (↓)
% Risk Weight	36 (36)	45 (45)	67 (67)
Allocation	80% (80%)

23 October: GBP/Eur closed unchanged for the week after an attempt to strengthen during the week on speculative unwinding and Brexit jitters. The EUR space has much stronger reserves than the UK and GBP is poised to loose strength in the currency space. A major devaluation wouldn’t be a surprise which would add to UK’s demise with a large contribution ticket waiting and payable in Euro. It doesn’t look good for the UK and it will take many years for this great country to manage a long term economic recovery. We remain bearish on the GBP/Euro cross and propose to maintain an 80% hedge on GBP receivables and vice versa.

16 October: Brexit causes GBP traders to be very irrational it seems. The UK show doesn’t good at all, but Sterling currency is behaving technically undecided the past few weeks. Not a great deal of price change in a directionless market. If a monetary reform is indeed on the cards GBP should fall in the same category as all other inflation countries during the 70’s and 80’s with one big difference. The UK has sold 50% of its gold reserves at rock bottom prices during consecutive labour governments whilst Public debt has now topped 100% to GDP. Under more stable genwral world economic conditions and a similar country risk scenario the GBP hedge would be 100%. Expected economic contraction as a result of Covid and a no deal Brexit puts it at 80%.

02 October: GBP rallied 1.5% since our 18 Sep update. This rally looks to be a short term event a bearish divergence appears to be developing between Daily and Weekly time frames. Our best consideration is for higher risk of a lower GBP exchange rate across the board and with a sub par price level against Euro which would be a historic low and very much in line with the historic trend of higher inflation in the UK than the major economies in Europe mainland. No Change.

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