USD/CHF drops to over one-week low, further below mid-0.9700s amid weaker USD

• USD/CHF witnessed selling for the second straight day amid the ongoing USD profit-taking slide.
• Diminishing odds for more aggressive Fed rate hikes weighed on the USD and exerted pressure.
• The risk-on mood could undermine the safe-haven CHF and help limit deeper losses for the pair.

The USD/CHF pair extended last week's retracement slide from the 0.9885 region, or a multi-week high and witnessed selling for the second straight day on Monday. Spot prices continued losing ground through the first half of the European session and dropped to over a one-week low, around the 0.9735 region in the last hour.

Several Federal Reserve officials signalled last week that they did not favour the bigger rate hike that the markets priced in following the release of red-hot US consumer inflation. Investors were quick to react and trimmed their bets for a supersized 100 bps Fed rate hike move in July. This, in turn, led to an extension of the US dollar profit-taking slide from a two-decade high and was seen as a key factor exerting downward pressure on the USD/CHF pair.

The downside, however, seems cushioned amid a generally positive tone around the equity markets, which tends to undermine demand for the safe-haven Swiss franc. The risk-on impulse pushed the US Treasury bond yields higher. This could act as a tailwind for the USD and offer some support to the USD/CHF pair, at least for now. Hence, it will be prudent to wait for strong follow-through selling before positioning for any further depreciating move.

In the absence of any major market-moving economic releases from the US, traders on Monday will take cues from the broader market risk sentiment. Apart from this, the US bond yields might influence the USD price dynamics and produce short-term trading opportunities around the USD/CHF pair.

Technical levels to watch