USDollar shows temporary benefit of doubt

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
90.93 (90.34)
Trend ↑ (↓) ↓ (↓ ) ↑ (↑ )
% Risk
Weight
8 (7) 45 (52) 35 (55)
Allocation 70% (50%)

$Index chart

 


Analysis

26 February 2021: The strong reversal on Thursday evening after reaching a low of 89.60 the Index continued upward on Friday pushing hourly risk weight into a high risk zone whilst medium term weekly is still pointing down. Daily risk is up from initially reaching a lower risk weight level on Thursday. The $Index rallied more sharply following a relatively weak move in Cable and Yen. We remain very much on the defense regarding USDollar. Mixed short term reactions are generally just temporary although this may last a little while longer. No Change.

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.


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

(Previous week in brackets)

EUR/USD Monthly Weekly Daily
1.2068 (1.2113)
Trend ↑ (↑) ↓ (↓) ↓ (↑)
% Risk
Weight
74 (75) 57 (61) 68 (60)
Allocation 70% (50%)

EURO/Dollar chart

 


EUR/USD Analysis

26 February 2021: Euro/USD reacted only mild to the broader dollar move. The Long term $ downtrend which started in 2016 with as first major reaction low in March 2020 is far from finished. As we believe the objective technical observation to justify a major trend change, we need yet to see a proper peaking indicator that the time for a major trend change has come. This may be years from now. No Change.

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.


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

(Previous week in brackets)

GBP/USD (Cable) Monthly Weekly Daily
1.3908 (1.3995)
Trend ↑ (↑) ↓ (↑) ↓ (↑)
% Risk
Weight
94 (95) 78 (80) 55 (70)
Allocation 50% (30%)

GBP/USD chart

 


CABLE Analysis

26 February 2021: Cable had a brief blow off top at 1.4240 on Wednesday reversing quickly and closing the week at 1.3908. Although Sterlings technical picture looks weakish short term, we feel that a perpetual 50% cover on forward dollar transaction long exposures is still the lowest risk approach. No Change.

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.


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

(Previous week in brackets)

GBP/EUR Monthly Weekly Daily
1.1505 (1.1543)
Trend ↑ (↑) ↑ (↑) ↓ (↑)
% Risk
Weight
75 (79) 89 (90) 55 (85)
Allocation 80% (80%)

GBP/EUR chart

 


GBP/EUR Analysis

26 February 2021: GBP/EUR of course has a similar blow off top on Wednesday at 1.1710 before finishing the trading week a little lower than previous weeek at 1.1505.Medium and Long term risk weight trends are still up but highly suspect. Technicals still do not confirm the stronger GBP action of the past few weeks. We remain b earish on GBP and pursue no change to majority cover (80%) on long GBP transaction exposures. Higher Gilt yields and possibly higher vaccination rates in the UK were the drivers of the recent higher Sterling levels, but the underlying picture, both technical and fundamental is more suspect of flowing into the inflationary direction witnessed 30-40 years ago. No Change.

19 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.

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

(Previous week in brackets)

USD/JPY Monthly Weekly Daily
106.47 (105.30)
Trend ↑ (↑) ↑ (↑) ↑ (↓)
% Risk
Weight
36 (35) 73 (72) 85 (72)
Allocation 50% (50%)

USD/YEN chart

 


Analysis

26 February 2021: This week the Yen broke a recent trend and followed the other major currencies against the US Dollar finishing at the highest level since August 2020. Dollar/Yen is still below its 50 year downtrend. It fell from 280.00 to 120.00 during the 1980's and has pivoted around the current level since 1990. The long term trend appears to still push the Yen down which kind of confirms that long term Japanese currency peak at 76.00 back in 2011, coinsiding roughly with the Gold price peaking at that time. The bigger picture is that Japan is no longer that master technology player it was during the latter half of the previous century. Looking at the long term chart we could see $/Yen staying roughly in position of even rally whilst the dollar broadly weakens. This essentially means that short Yen transaction exposures against most major currencies can remain largely unhedged for the next several years.

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%.


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

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