USD/CHF flirts with daily low, bears now await sustained weakness break below 0.9600 mark

• USD/CHF meets with a fresh supply on Wednesday and drops to the 0.9600 neighbourhood.
• Recession fears offer some support to the safe-haven CHF and exert pressure on the major.
• Softer US bond yields act as a headwind for the USD and contribute to the modest weakness.
• Hawkish Fed expectations should limit any meaningful slide for the greenback and the pair.

The USD/CHF pair attracts some selling near the 0.9660-0.9665 region on Wednesday and slides to a fresh daily low during the first half of the European session. Bears now await a sustained break below the 0.9600 round figure before positioning for an extension of the overnight pullback from the vicinity of the 0.9700 mark, or over a one-month high.

Investors remain concerned about a global economic downturn in the wake of stubbornly high inflation, tighter financial conditions and headwinds stemming from China's COVID-19 lockdowns. This is evident from a generally weaker tone around the equity markets, which offers some support to the safe-haven Swiss franc and exerts some downward pressure on the USD/CHF pair.

The downside, however, seems cushioned mid the emergence of some US dollar buying, bolstered by hawkish Fed expectations. Investors seem convinced that the Fed will stick to its policy tightening path and have been pricing in at least a 50 bps rate hike move at the September FOMC meeting. That said, a modest pullback in the US Treasury bond yields cap gains for the buck.

The mixed fundamental backdrop warrants some caution before positioning for a firm near-term direction. Traders might also prefer to wait on the sidelines ahead of Fed Chair Jerome Powell's speech at the Jackson Hole symposium on Friday. Market participants are bracing for a more hawkish message and will look for clues about a supersized 75 bps Fed rate hike in September.

In the meantime, traders on Wednesday might take cues from the US economic docket - featuring Durable Goods Orders and Pending Home Sales data later during the early North American session. This, along with the US bond yields, might influence the USD. Apart from this, the broader market risk sentiment should contribute to producing short-term trading opportunities around the USD/CHF pair.

Technical levels to watch