Positive yield curve breaths inflation | 19 Febr

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

US Dollar Index Price Risk Analysis Forecast 2021

(Previous update in brackets)

USD Index Monthly Weekly Daily
90.34 (91.00)
Trend ↓ (↑) ↓ (↑) ↑ (↓ )
% Risk
Weight
7 (8) 52 (65) 55 (72)
Allocation 70% (50%)

$Index chart

 


Analysis

19 February 2021: Our increase to 70% dollar receivable hedge 2 weeks ago feels very comfortable and balanced. Technically because weekly risk has turned down following a stronger rise since October and leveling at 60% risk. This is the same level as the July 94.50 peak but this time at 91.60. This is bearish and coincides with a divergence vis a vis the Monthly which is hovering in oversold territory at 7%. The currency space is influenced by rising long term yields and a steepening curve which indicates expectation of higher inflation on the horizon. The sharp rise of UK gilt yields has kept GBP relatively strong which had further negative bearing on the Dollar Index. No Change.

5 February 2021: The US$ index represents a broader view on future dollar direction. The USDollar has been a little stronger since the start of the new year. As mentioned last week, Weekly risk weight may develop bearish divergence and that is what it looks like at the Feb 5 close. With Daily risk also advancing more rapidly and diverging from the Monthly indicators we will increase the dollar risk hedge back to 70% from 50%.


EUR/USD FX live price, Weekly EURO vs US Dollar Price Risk Analysis Forecast

(Previous week in brackets)

EUR/USD Monthly Weekly Daily
1.2113 (1.2037)
Trend ↑ (↓) ↓ (↓) ↑ (↑)
% Risk
Weight
75 (73) 61 (69) 60 (17)
Allocation 70% (50%)

EURO/Dollar chart

 


EUR/USD Analysis

19 February 2021: Euro long term yields also pushed higher and a bit more slowly than against USD and GBP. The same narrative as for the US$ Index. As maintstreet awareness of inflation is becoming a reality in most people's wallets, the USA is likely to display that pressure being the reserve currency and with commodity prices moving (substantially) higher across the board. Technically, as in technical analysis, Euro/USD is not quite 'risk on' but a 70% perpetual hedge on dollar receivables as initiated 2 weeks ago should be a comfortable low risk treasury position. No Change.

5 February 2021: After an interim anticipated dollar correction upward, the technical picture now reads for a weaker dollar in the short and medium term again. We immediately move back to a 70% perpetual hedge on long dollar risk.


Cable GBP/USD FX live price, Weekly Sterling vs USDollar Price Risk Analysis Forecast

(Previous week in brackets)

GBP/USD (Cable) Monthly Weekly Daily
1.3995 (1.3720)
Trend ↑ (↑) ↑ (↓) ↑ (↑)
% Risk
Weight
95 (95) 80 (77) 70 (45)
Allocation 50% (30%)

GBP/USD chart

 


CABLE Analysis

19 February 2021: Uk 10 year gilts have performed best of all the majors and this has affected Cable in a very positive way holding its recent strength. The yield increased was indeed strong with a more than 100% yield advance to 70bp from 30bp in just one month. We maintain our forecast of a much weaker pound in the medium term, but not necessarily against the USDollar. 2 weeks ago we increased the perpetual hedge to 50% of long dollar transaction exposure, which we feel is a low risk manageable position to hold. Technically Cable looks firm and now leads the non usdollar currency space up. GBP has, on an interim monthly basis, broken the long term downtrend that started early 2008. That in itself is a ppotential early signal for significant dollar weakness. A monthly break of 1.4400 would take Long term Cable into a fully hedged dollar exposure.

5 February 2021: The general dollar outlook now also affects Cable and we are moving back to 50% hedge on long dollar transaction exposures. GBP was again relatively strong last week whilst cable dropped into midweek and turned up on Friday again. This is technically a stronger indication that the dollar may weaken further in the short term and also build medium term strength despite higher risk weight levels in long term time scales. GBP however still eyes weaker Medium term even though the market has pushed in the oppsite direction.


GBP/EUR FX live price, Weekly Sterling vs EURO Price Risk Analysis Forecast

(Previous week in brackets)

GBP/EUR Monthly Weekly Daily
1.1543 (1.1385)
Trend ↑ (↑) ↑ (↑) ↑ (↑)
% Risk
Weight
79 (78) 90 (82) 85 (73)
Allocation 80% (80%)

GBP/EUR chart

 


GBP/EUR Analysis

12 February 2021: Even though currency movements are not spectecular and relatively low risk in terms of cost of goods sold, the continued rise of GBP vs Euro begins to look a bit hyperbolic. This has become an unusual sight in the currency space since the introduction of the Euro. GBP also benefits from a rapidly steepening yield curve. This currency pair still trades in 12 eurocent range since 2016 with 1.20 being the top of that range. We may reach that level with a very overbought technical condition. Long term analysis still favors GBP falling towards a sub par level against Euro. Reason is that we have neverf seen any Real long term risk bottom develop since the 1.0200 bottom of 2008. The present mild rally looks like a longer time scale correction of the 2014/2016 drop from 1.4000 to 1.0700 No Change.

5 February 2021: In spite of persistent but mild GBP strenght, Risk weight development still does not look favourable and the risk of a much weaker GBP is increasing as a result. We cannot see any fundamential reason either for Sterling strength, other than the emotional benefit of faster Covid vaccinations. In the end no country, and certainly the UK, can do it alone, except perhaps China for a while. We hold a perpetual 80% hedge on long GBP exposures. Long term objective calls for a break of the March 2020 low at 1.05 with a potential for 0.90.

USD/JPY FX live price, Weekly USdollar vs Japanese Yen Price Risk Analysis Forecast

(Previous week in brackets)

USD/JPY Monthly Weekly Daily
105.30 (104.55)
Trend ↑ (↑) ↑ (↑) ↓ (↑)
% Risk
Weight
35 (24) 72 (60) 72 (74)
Allocation 50% (50%)

USD/YEN chart

 


Analysis

19 February 2021: Dollar Yen has been targeted well below par by many observers. We have remained cautiously more optimistic where Yen still appears to follow the USD direction. This means dollar weakness also leading to Yen weakness against the dollar magnifying the down and up movement against Euro. This reality may well change as currency differences become an international trade issue. For now Dollar Yen cover should be kept at 50%.

29 January 2021: Dollar/Yen ended the week relatively stronger on the back of apparent balancing of investment portfolios. Last week's rally is also an attempt to break a one year down trend. The technical picture between different time scales could trigger more medium Yen weakness against all major currencies. We maintain advice to hold a neutral and very manageable 50% cover on currency trading risk.


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Posted in A - All Financial Blogs | 2021 Forecast, FX - USD Index, EUR, GBP, YEN | EYEFORGOLD.

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