9 September 2020 | Mid week Currency management update | USD still softer

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

USD Index	LT-M	MT-W	ST-D
93.26 (92.30)
Trend	↓ (↓)	↑ (↓)	↑ (↓)
% Risk Weight	9 (18)	12 (8)	72 (42)
Allocation	70% (50%)

9 September: Today we increase general dollar receivable hedge from 50 to 70%. The signal is a weak weekly risk weight scenario coupled with a rapidly increased risk on the daily (Bearish divergence developing vs Weekly). First objective is 88.50 which is the 2017 support followed by the 2013 support at around 80.00. 70% is a manageable risk for true forward dollar receivable against major currencies. Dollar payables can be kept at spot and no hedge.

28 August: 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 continue 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
1.1815 (1.1898)
Trend	↑ (↑)	↓ (↑)	↓ (↑)
% Risk Weight	85 (75)	85 (90)	20 (52)
Allocation	70% (50%)

9 September: Today we increase dollar receivable hedge against Euro from 50 to 70%. The signal is similar to that of the dollar Index with a weak weekly risk weight scenario coupled with a rapidly increased risk on the daily (Bullish divergence developing vs Weekly). First objective is the 2017 top at 1.2400 followed by the 2013 peak at around 1.40. 70% is a manageable risk for true forward dollar receivables against Euro. Fwd Dollar payables exposures can be kept at spot without hedge.

28 August: 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.

GBP/USD (Cable)	LT-M	MT-W	ST-D
1.3000 (1.3345)
Trend	↑ (↑)	↓ (↑)	↓ (↑)
% Risk Weight	75 (65)	83 (90)	20 (74)
Allocation	50% (50%)

9 September: GBP shows a similar picture as EUR and Index because of the developing bullish divergence between Daily and Weekly risk. but GBP also looks slightly weaker in its own right and could stall at a slightly higher Cable level and then folllow the US Dollar downward trend against other major currrencies. Given that Cable technically still looks fairly firm we keep our perpetual hedge at 50% for now.

28 August: 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.

USD/JPY	LT-M	MT-W	ST-D
106.20 (105.30)
Trend	↓ (↓)	↑ (↓)	↓ (↓)
% Risk Weight	45 (49)	30 (30)	56 (48)
Allocation	50% (50%)

9 September: Dollar Yen is looking for direction and doesn’t look as weak as aginst other major currencies including GBP. Being directionless creates a more speculative scenario and the best risk averse remedy is to keep dollar receivable exposures covered at 50%.

28 August: 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.

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GBP/EUR	LT-M	MT-W	ST-D
1.0990 (1.1205)
Trend	↑ (↓)	↑ (↑)	↑ (↑)
% Risk Weight	37 (39)	60 (45)	81 (81)
Allocation	80% (80%)

9 September: GBP has returned into its natural softer position during the past 2 weeks. It almost looks like GBP may be building a bottom with mild bullish divergence in the Monthly risk frame. Brexit remains the weaker link, and it doesn’t change the overall weaker picture for GBP vs Euro. A break of 1.0945 on a closing basis sets up for a weaker GBP/Eur to challenge the March 2020 low of 1.0500. No Change.

28 August: 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.