- USD/CHF regained positive traction on Monday and soared to a fresh two-year high.
- A softer risk tone underpinned the CHF as a safe haven and capped it amid a weaker USD.
- Falling US bond yields and disappointing US macro data put pressure on the dollar.
The pair USD/CHF it pulled back a few pips from a two-year high hit during the early American session and was last seen trading around the 1.0050 area, up 20% on the day.
After the brief pause on Friday, the USD/CHF pair attracted fresh buying on the first day of a new week and is now looking to build on its upward trajectory seen over the last month and a half or so. That said, a combination of factors prevented the bulls from making aggressive bets and kept any significant upside for spot prices at bay.
Investors remain concerned that a more aggressive move by major central banks to limit inflation could hurt global economic growth amid the war in Ukraine and China’s zero COVID-19 policy. Concerns were further fueled by weaker Chinese macro data, which weighed on investor confidence and extended some support for the safe-haven Swiss franc.
Conversely, the US dollar came under pressure from a softer tone around US Treasury yields. This was seen as another factor acting as a headwind for the USD/CHF pair. The USD remained on the defensive following the disappointing release of the Empire State Manufacturing Index, which signaled worsening conditions and unexpectedly plunged to -11.6 in May.
That said, expectations that the Fed will tighten monetary policy at a faster pace to curb runaway inflation should help limit dollar losses and provide USD/CHF with support. The fundamental backdrop favors bullish traders, suggesting that any significant pullback could be seen as a buying opportunity and remain capped, at least for now.
Market focus now shifts to the release of US retail sales figures on Tuesday. Investors will also be scrutinizing comments from various FOMC officials, including Fed Chairman Jerome Powell, for clues about the possibility of a 75bp rate hike. This would influence the USD price dynamics and determine the next leg of a directional move for the USD/CHF pair.
Technical levels
Source: Fx Street
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