- USD/CHF witnessed a modest intraday pullback from the new yearly high hit earlier this Tuesday.
- The retreat in US bond yields kept USD bulls on the defensive and sparked some profit taking.
- Risk appetite boost undercuts safe-haven CHF and capped losses amid Fed hawkish line expectations.
The pair USD/CHF it extended its intraday retracement decline from a three-year high and fell to the 0.9900 area during the early American session.
The pair witnessed a turnaround from the 0.9975 region, or its highest level since May 2019 touched earlier this Tuesday, and for now appears to have broken a three-day winning streak. The ongoing corrective decline in US Treasury bond yields undermined the US dollar and prompted traders to lighten their bullish bets on the USD/CHF pair. Apart from this, the decline lacked an obvious fundamental catalyst and is more likely to remain limited amid prospects for more aggressive policy tightening by the Fed.
Investors seem convinced that the Fed would have to take more drastic measures to control inflation. In fact, markets are still pricing in a further 200bp rate hike for the rest of 2022. Furthermore, concerns about rapidly rising consumer prices should act as a tailwind for US bond yields. Therefore, the focus remains glued to the release of the US CPI report on Wednesday. However, the fundamental backdrop favors USD bulls and supports the prospect of some buying on the dips around the USD/CHF pair.
Additionally, a generally positive tone in equity markets, which tends to draw flows away from the safe-haven Swiss franc, validates the positive outlook for the USD/CHF pair. Therefore, it will be prudent to wait for a strong follow-up selloff before traders begin to position themselves for any significant corrective slide. In the absence of major market-moving economic releases, US bond yields will weigh on USD demand. This coupled with broader market risk sentiment should provide a trading boost to the USD/CHF pair.
Technical levels
Source: Fx Street
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