06 November 2020 | Currency update | US Dollar troubled by US Presidential election jitters

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

USD Index	LT-M	MT-W	ST-D
92.24 (92.75)
Trend	↓ (↓)	↑ (↓)	↓ (↑)
% Risk Weight	13 (10)	41 (30)	30 (18)
Allocation	70% (70%)

08 November: The Outlook we present is not the kind that triggers active trading, hence a slower update from tim to time. The trading volatility reflects presidential election jitters where the dollar weakened a few points 2 weeks ago and suddenly reversed last Friday as it became clearer than Biden was closing in. It will be interesting to see how the dollar behaves at opening Monday Nov 9 following the President elect call. Technically we can but follow the larger picture which looks for a medium term bullish divergence developing before we can see a bottom in the USDollar index. We have been in a 3% range now nearer the bottom end. A closing break of 91.75 could trigger a rapid drop into the 88 handle. The lower risk Long term Monthly risk level of 13 only becomes relevant to a new bull grend once Medium term and Short term show a serious oversold condition. No Change.

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.

EUR/USD	LT-M	MT-W	ST-D
1.1867 (1.1860)
Trend	↓ (↑)	↓ (↑)	↑ (↑)
% Risk Weight	82 (88)	52 (67)	62 (81)
Allocation	70% (70%)

08 November: Daily and Weeklyprice and risk bounced off of the 1.1700 handle support level. The coming week is needed for traders to position with the latest events in place. Tendency has been for Trump = bearish and Biden = bullish for Euro. That should not make a difference but it will until this market finds a real macro direction. We still favor a weaker dollar Medium and Longer term, keeping dollar receivables largely covered. No Change.

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.

GBP/USD (Cable)	LT-M	MT-W	ST-D
1.3138 (1.3040)
Trend	↓ (↑)	↑ (↑)	↑ (↑)
% Risk Weight	76 (79)	45 (51)	65 (70)
Allocation	50% (50%)

08 November: Even though GBP has shown relatively more strength against dollar than Euro, the picture for cable isn’t that great technically. We still expect Sterling to find resistance against the dollar whilst the dollar continues to weaken against other majors. No Change to 50% dollar receivable cover.

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%.

USD/JPY	LT-M	MT-W	ST-D
103.30 (104.70)
Trend	↓ (↓)	↓ (↓)	↓ (↓)
% Risk Weight	32 (40)	20 (35)	16 (25)
Allocation	50% (50%)

08 November: Dollar/Yen has been slightly weaker than expected yet still looks to develop more of a bottom in a long term declining channel that started in January 2017 and shows higher risk of Yen following the dollar rather than outperforming the greenback longer term. No Change.

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.

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GBP/EUR	LT-M	MT-W	ST-D
1.1050 (1.0995)
Trend	↓ (↓)	↑ (↑)	↓ (↓)
% Risk Weight	35 (36)	50 (45)	62 (67)
Allocation	80% (80%)

08 November: Not much change the past two weeks with GBP ending 1/2% higher after two weeks. GBP IOO still reflects the economic vulnerability and reality of the UK going into an uncertain Brexit future and what ever the deal, Great Britain Ltd needs to improve its footing dramatically. No change to our much weaker outlook for GBP Medium and Longer term.

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.

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