Following last week’s market movements, the U.S. dollar (USD) is showing mixed signals, according to Bank of America (BofA). The global shock triggered by the U.S. tariff announcement on April 2 has caused a classic risk-off dynamic in the foreign exchange (FX) market.
The Japanese yen (JPY) and Swiss franc (CHF) saw significant rallies, rising more than 2% against the USD. In contrast, the Norwegian krone (NOK) and Australian dollar (AUD) dropped by over 2% within the G10 currencies. The Euro (EUR) also saw a 1.5% increase against the USD, matching BofA’s earlier forecast.
BofA’s quantitative analysis presents a mixed short-term outlook for the USD. Despite the dollar’s 1% gain last week, their CARS model suggests a pause in trading until the ongoing risk-off shock subsides.
Breaking down the market by time zone, BofA notes that U.S.-based investors did not contribute to the USD’s weakness in recent days. Any decline in the USD occurred outside U.S. trading hours.
For those optimistic about the USD, BofA’s models point to the USD against the Swedish krona (SEK) and the Chinese yuan (CNH) as the top G10 and emerging market (EM) pairs to watch this week.
The USDSEK surpassed the 10.00 mark at the end of last week, with trend analysis now signaling potential reversals for both USDSEK and EURSEK. In the EM category, bullish sentiment continues for the USD against CNH, supported by both option flow and an uptrend in the spot market.
For those bearish on the USD, BofA predicts that if the current risk-off sentiment persists, the USD against JPY could drop below the 145 support level. They estimate that the downtrend could continue, with the next target at 140.56.
In conclusion, regardless of one’s position on the USD, the key risk in the near term remains the ongoing implementation of U.S. tariffs and the global retaliation expected in the coming days.
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