Currency forecast 28 August 2020

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

USD Index	LT-M	MT-W	ST-D
92.30 (93.10)
Trend	↓ (↓)	↓ (↑)	↓ (↑)
% Risk Weight	18 (19)	8 (8)	42 (40)
Allocation	50% (50%)

In an ideal world we would technically choose a larger hedge on long dollar exposures. But this ain’t an ideal world and any longer term exposure could be detrimental to unknown economic and transactional risk. The index actually looks weak but not as weak as USD vs EURO for instance indicating perhaps relative medium term weakness against GBP and YEN. We con tinue to favor a perpetual 50% cover of dollar receivables. On the side of dollar payables that perpetual cover could even be reduced to zero as that risk appears still low.

14 August: Daily risk weight has run up to 40 with Weekly at low risk turning up and Monthly still in downtrend. Not a clearcut case but opens for a mild bearish divergence between Short and Medium term risk. This could happern with a strong dollar decline although the Weekly appears to not allow that right now. Ideally a new low for the USDollar index before a slightly longer pause.
A perpetual 50% cover of dollar receivables is still the correct strategy

EUR/USD	LT-M	MT-W	ST-D
1.1898 (1.1838)
Trend	↑ (↑)	↑ (↓)	↑ (↓)
% Risk Weight	75 (77)	90 (91)	52 (63)
Allocation	50% (50%)

The Euro has started to show more strength in the past 2 weeks. It is also appears to want to seriously break the 12 year downsloping resistance line, now at 1.1775 have closed above that line for the past 3 weeks. The short term technical picture looks firm even though Medium and Long term risk weight has travelled to higher regions. Strategy, given the economic uncertainty is to maintain a 50% perpetual hedge on dollar receivables. Dollar payables do not necessarily require cover in this latest picture.

14 August: The USD Dollar shows the same picture against Euro as the Index does although the Euro has a slightly stronger feel to it to confirm we may be in for fresh rally into 1.20+. The strategy to stay with a perpetual 50% dollar receivable cover is proably still the better one as economic risk and future trade may weigh on the opposite side of dollar receivables. No Change

GBP/USD (Cable)	LT-M	MT-W	ST-D
1.3345 (1.3080)
Trend	↑ (↑)	↑ (↑)	↑ (↓)
% Risk Weight	65 (63)	90 (89)	74 (70)
Allocation	50% (50%)

GBP has behaved stronger than we expected. Long term Risk weight does give room for further strength but Short term is displaying continued bearish divergence. That short term position could easily drive Medium and Long term into a weaker risk position. As USD remains the weaker brother in the bigger picture we stick with the same strategy and keep 50% perpetual cover on dollar receivables.In the case of GBP we would prefer to also maintain some underweight cover on dollar payables. Say 25% to otherwise stay close to home.

14 August: GBP has strong long term overhead resistance at the 1.35 handle. Cable also doesnt appear finished but the resistance may be the trigger for our Sterling weakness objective versus Euro. For now the same Dollar hedge strategy should be applied as for Euro and the Index. No Change

USD/JPY	LT-M	MT-W	ST-D
105.30 (106.50)
Trend	↓ (↓)	↓ (↑)	↓ (↓)
% Risk Weight	49 (52)	30 (28)	48 (88)
Allocation	50% (50%)

Our increase of dollar cover two weeks ago to 50% of dollar receivables will be maintained. Dollar payables risk is for Yen based companies which we do not support, but can be underweight as with other USD/FX relationships.

14 August: Dollar/Yen Short term is now bouncing against the narrow range between 106.50 and 108.00 that developped during June and much of July. The potential bearish divergence calls for an increase of dollar cover to a perpetual 50% from 25%. The picture is not clear enough to go larger given the shape of the monthy price since 2017, but the feel is for a weaker dollar/yen to develop overe time

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GBP/EUR	LT-M	MT-W	ST-D
1.1205 (1.1055)
Trend	↓ (↓)	↑ (↑)	↑ (↓)
% Risk Weight	39 (36)	45 (25)	81 (53)
Allocation	80% (80%)

GBP has turned against our strategy with a stronger look in short term risk weight. GBP still feels the weaker partner in this currency relationship and for now will stay with our sub par long term outlook. No Change.

14 August: GBP/EUR looks to be manipulated towards a low risk supported exchange rate. If successful GBP could turn higher developing a similar broadening pennant looking very bearish as is the case with S&P. For now we prefer to hold our strategy where expect GBP to continue weaker in the Long term. No Change