USDollar still mixed at year end | 31 December 2020

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

US Dollar Index Price Risk Analysis Forecast Jan4, 2021

(Previous week in brackets)

USD Index LT-M MT-W ST-D
89.92 (90.22)
Trend ↓ (↓) ↓ (↓) ↓ (↓)
% Risk
Weight
5 (11) 7 (8) 13 (19)
Allocation 50% (70%)

$Index chart


Analysis

31 December: 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.

24 December: As Daily risk is already moving into potential bearish divergence versus weekly and Monthly, the short Christmas week does not give enough weight ammunition to argue the uptrend in weekly risk. Weekly risk is not yet showing bullish divergence either. With Monthly risk still in an interim downtrend this must be considered the leading USD trend indicator with potentially many more months of dollar weakness in store. No Change.


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

(Previous week in brackets)

EUR/USD LT-M MT-W ST-D
1.2293 (1.2196)
Trend ↑ (↑) ↓ (↑) ↓ (↓)
% Risk
Weight
91 (86) 90 (90) 72 (64)
Allocation 50% (70%)

EURO/Dollar chart


EUR/USD Analysis

31 December: 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.

24 December: EUR/USD logically shows a similar pattern as the USD index being the largest Dollar index contributor. Daily risk already reversed fairly sharp from the overbought condition one week earlier. Breaking the 2017 1.2555 high is a matter of time. We are not reducing the (perpetual) 70% hedge on dollar receivables.

18 December: Hourly pressure keeps holding the dollar in a downward spiral and Euro up. This market appears close to an intermediate dollar bottom but has not yet reached that clear turning point. Going into Christmas this may change but we'd be looking for a minimum 50% hedge, from 70%, on dollar receivables.


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

(Previous week in brackets)

GBP/USD (Cable) LT-M MT-W ST-D
1.3671 (1.3562)
Trend ↑ (↑) ↑ (↑) ↑ (↑)
% Risk
Weight
92 (84) 87 (78) 88 (78)
Allocation 50% (50%)

GBP/USD chart


CABLE Analysis

31 December: 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.

24 December: GBP is still looking the weakest major fiat in the index. It is finally breaking an 11 year long term Monthly downtrend versus USDollar, but nothing spectecular, hence a solid 50% perpetual hedge on dollar receivables.

18 December: As Brexit nears completion, the jitters, of 'maybe deal' or 'no deal' can be felt in financial markets. It is very speculative and right now GBP, together with Dollar Yen, still looks a weaker brother in the currency space. Hence staying with a lower 50% hedge on dollar receivables, awaiting further news during the coming week. No Change.


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

(Previous week in brackets)

GBP/EUR LT-M MT-W ST-D
1.1195 (1.1120)
Trend ↑ (↑) ↑ (↑) ↑ (↑)
% Risk
Weight
40 (41) 64 (55) 90 (84)
Allocation 80% (80%)

GBP/EUR chart


GBP/EUR Analysis

31 December: 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.

24 December: The near 100% chance of filling the gap open at 1.0890 on Dec 14 was filled one week later bottoming at 1.0850 and rallying to a 1.1170 high following the Brexit deal announcement. Traditionally Sterling is a speculative currency b ut it has lost much of its shine in international trade. The effect of the Brexit trade terms look extremely unclear and GBP fundamentally looks vulnerable. Even though the interim Monthly risk weight trend turned slightly up, the strong advance of daily risk is a reason for concern of a weaker pound versus Euro. The risk picture of this GBP/EURO currency cross warrants an above average hedge on Sterling receivables. No Change.

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

(Previous week in brackets)

USD/JPY LT-M MT-W ST-D
103.00 (103.00)
Trend ↓ (↓) ↓ (↓) ↓ (↑)
% Risk
Weight
28 (29) 14 (19) 28 (39)
Allocation 50% (50%)

USD/YEN chart


Analysis

31 December: $/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.

24 December: So far this year Yen has lacked the performance againbst USDollar as seen with other majors currencies and the technical picture is also indesicive.Dollar/Yen feels more like bottoming action than anything else. The risk of Dollar/Yen finally catching up on its lagging performance appears low. No Change.


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

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