(Previous week in brackets)

8 January 2021: On Jan 4 we moved the basket dollar hedge from 70 to 50%. With Daily and Weekly risk weight turning up and monthly showing a slightly higher risk weight downtrend, this picture is normally indicative of a countertrend rally which could last a while. as short term timescales may develop a bearish divergence versus their Longer term brothers. Specs should not be short dollars at this moment whilst risk points in the opposite direction. No Change to 50% hedge.

31 December 2020: The USD index shed 7% from open to close in 2020 and is now closing in on the Feb 2018 low at 88.25. Technicals are indicating a potential temporary reversal fairly soon and on the hourly chart we can see 2 gap openings at 89.92 and 90.32 that normally would be filled pretty soon. The Daily is showing potential bullish divergence yet the risk trend is still pointing down. As this update is on Jan 4 with the index dropping just below 89.50 speculators short dollars should be lightening up by 50%. Hedge positions can be reduced to 50% with a view to keep risk covered and to possibly add substantially again if bearish divergence appears between daily and weekly or weekly vs monthly. For many traditional trading corporations the forward dollar funds flow is harder to predict as transaction conditions have worsened due to Covid.

 

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8 January 2021: Our technical observation is the same as for US$ Index. On Jan 4 we took out 20% of dollar receivable cover. Specs should not be short dollars until a clear confirmation of the continuation of Euro uptrend can be shown. If short and medium term risk trends turn, one must be careful about the extend of such turn which more often than not turns to a Murphey's Law surprise or a move that will be larger than anticipated. The potential based on common chart patterns is that Euro flows back into a 1.16-1.18 range relatively quickly. No Change to 50% dollar receivable hedge.

31 December 2020: The Euro gained 9% in 2020, open to close ending the last week of 2020 in consolidation. It looks like the move has not yet finished and we are still eyeing the same 2018 dollar low at 1.2550. With Euro pushing close to 1.23 on the first full trading day of 2021 we would prefer to lighten up to a 50% cover with a view to maybe step back in larger if technicals signal fresh bullish divergence between different time scales.

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8 January 2021: Cable was more volatile as a result of Brexit squaring trading between 1.3550 and 1.3650 most of last week. Risk looks similar to Index and Euro although Weekly Medium term is still in uptrend with interim Monthly uptrend weakening between Jan 4 and 8. No Change to 50% dollar receivable cover.

31 December 2020: GBP was a weaker performer against USD in 2020 gaining a nhet 4.5% open to close, even though the dollar rallied massively with Cable dropping to a low of 1.1500 at the first lockdown in March. Current technical conditions at the start of trading in 2021 do not look that favourable even though the market seems to think Brexit is a positive thing for Sterling. As economic conditions have worsened the better risk approach is to stay with a 50% perpetual hedge on expected, not necessarily budgetted, dollar receivables.

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8 January 2021: Daily risk got quickly overbough on Jan 4 and turned down. The mix of tools is fairly neutral and the leading tools to indicate downbside risk still are Relative streength and MACD (Moving average advance decline). Stochastic risk is mixed meaning based on that alone this pair could turn on a moments notice and looks more speculative. In this scenario and the real problems UK has with European trade GBP receivables should remain 80% hedged for now. No Change.

31 December 2020: GBP/EUR opened 2020 at 1.1135 and closing at 1.1195. A net 0.5% rise which was wiped on this first day of trading. From a technical risk management perspective we have been more bearish on Sterling vs Euro and this is still the case today. Monthly risk weight is in an shalow uptrend but even contracting and narrowing to 40 at year end from 41, with further narrowing interim to 39 on Jan 4, 2021. This is not the picture for a strong market and companies receiving fwd sterling and vice versa should remain very cautious and keep at least 80% covered. The whole of 2020 looks like a struggle for GBP to keep a straight face amidst serious financial economic issue, not just a result of Covid. There is a gap open from Dec 31st that may still be filled at 1.1194, but it is not that same typical gap we have described many times and which can be expected to get filled almost 100% of the time. We'll see, but our recommendation is to keep 80% of GBP receivables covered. Translation risk is another issue that may start to play a role following Brexit, but often much harder for management to act on. Low risk currency management requires serious engagement. It is not that easy for most. No Change.

8 January 2021: As we have been expecting throughout 2020, the Japanese Yen continued to follow the dollar on its slightly weaker path versus the other major currencies, Euro, CHF, GBP. The 1% strengthening dollar/yen into 8 January to 104.00 from 102.60 is consistent with the general short term dollar direction last week. A 103.50-105.00 range is likely before we may see some very short term hourly divergence. Any move is likely to be fairly limited. No Change.

31 December 2020: $/Yen lost 5% open to close in 2020 which is a similar performance as GBP. A slightly weaker currency amongst the majors and this picture is not changing looking at our technical tools. Yes the dollar does still look a little weaker but at the start of trading today, January 4, it is starting to look bottomish with pottential bullish divergence within the daily and weekly time scales. Potential, not confirmed. With longer term risk still pointing down we could imagine the objective of 100 to one dollar, which is the low seen in 2016. We propose to hold Yen payables or dollar receivables versus Yen at 50%. No Change.

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