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Investing.com -- The USD experienced a brief rally in response to positive US/China trade deal news early last week, but global investors quickly sold off the gains. The 50-day Simple Moving Average (SMA) support levels have, for the most part, held firm for G10 foreign exchange (FX) against the USD.
The bearish momentum for the USD has eased somewhat following last week’s sell-offs. The USD notably rallied during US trading hours, aligning with the typically bullish seasonality seen in May. However, investors based in Asia have been the most aggressive sellers of the USD.
In the realm of currency pairs, the British Pound to US Dollar (GBP/USD) is showing bullish signals based on options flow and the continuation of its current trend. The 1-month GBPUSD risk reversal has reached a new five-year peak.
The uptrend in the spot market is underpinned by both up/down volatility and residual skew, and it is currently not close to the level that would trigger an unwind, which is on a 1.31 handle. BofA analysts anticipate that the bullish trend will persist up to 1.3760, which aligns with their second quarter forecast for 2025.
European currencies, especially the Euro (EUR), have started the week strongly against the USD, following news of a US sovereign credit rating downgrade. The negative correlation between the USD and the Swiss Franc (USD/CHF) spot price and gold remains high, with a year-to-date correlation of -95%.
As persistent concerns over US sovereign credit could bolster gold prices, this may also contribute to downward pressure on USD/CHF, potentially leading to a retest of the 0.82 support level.
BofA analysts also note that a potential risk to their bearish USD outlook could come from benign US reciprocal tariff rate announcements. The recent US/China trade deal headlines indicated that easing tariff tensions could result in short-term USD rebounds.
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