USD/CHF pulls back from two-week highs after failing to break above 0.9600

• USD/CHF rises for the fifth day in a row, though trims gains from nearly two-week highs.
• Fed expectations and rising US bond yields lift the dollar and remain supportive.
• The risk aversion state supports the safe haven Swiss franc and caps gains.

USD/CHF continues this week’s positive move for the fifth day in a row. After hitting almost two-week highs at 0.9592, the pair trimmed gains and fell towards the 0.9550 area. The decline was due to a worsening of the mood of the markets. The pair is on track to end the week with significant gains, rebounding from four-month lows.

Growing concerns about a global economic downturn continue to weigh on investor sentiment, as evidenced by falling stock markets across the globe. This gives some support to the Swiss franc, even despite the rise in sovereign bond yields in Europe.

The dollar is also in demand due to risk aversion. Indeed, the dollar index (DXY), which tracks the greenback against a basket of currencies, rises to its highest level since July 18 and remains well supported by Fed expectations. Markets seem convinced that the Fed will continue its tightening cycle. Recent comments from various central bank officials and new positive US macroeconomic data reaffirm the market’s bets.

This brings the benchmark 10-year US bond yield back closer to the 3% threshold and should continue to act as a tailwind for the dollar. The fundamental background suggests that the path of least resistance for the USD/CHF pair is to the upside. Therefore, any significant pullback could be seen as a buying opportunity and remain limited.

In the absence of major economic releases in the US, US bond yields and stock market developments may be key to dollar performance.

Technical levels