USD/CHF steadies around mid-0.9700s, as markets await Fed’s Powell

• USD/CHF remains sidelined after reversing from two-month high.
• Cautious mood ahead of the key events probes momentum traders.
• Swiss Unemployment Rate and ECB are also important for near-term directions.

USD/CHF licks its wounds near 0.9750, after falling the most in a month the previous day, as traders await the week’s crucial catalysts during early Thursday. Also challenging the Swiss currency pair could be the mixed risk signals.

While portraying the mood, the US 10-year Treasury yields extend Wednesday’s pullback from the highest levels since mid-June to 3.23% whereas the S&P 500 Futures fades the bounce off the lowest levels since July 19 as it seesaws around 3,980 by the press time.

The main catalyst is the anxiety ahead of the all-important European Central Bank (ECB) Monetary Policy Meeting and Fed Chair Jerome Powell’s speech. Also weighing on the sentiment could be the hawkish Fed bets, covid fears emanating from China and the likely escalation in the Sino-American tussles.

On Wednesday, the market’s optimism spread by the firmer data from the major economies and Fed’s Beige Book, not to forget the mixed Fedspeak, seemed to have weighed on the USD/CHF pair.

Eurozone’s final reading of the Gross Domestic Product (GDP) rose by 0.8% QoQ in the three months to June of 2022 (Q2 2022) vs. 0.6% initial forecasts. Also, the YoY figures improved to 4.1% in Q2 vs. 3.9% marked in the initial forecasts. On the other hand, US Goods and Services Trade Balance improved to $-70.7B in July from $-80.9B prior, versus $-70.3B forecasts. Further, the Good Trade Balance deteriorated to $-91.1B from $-89.1B marked in July.

Elsewhere, Fed Vice Chair Lael Brainard reiterated on Wednesday that the Fed's policy rate will need to rise further and that they will need to keep the policy restrictive 'for some time,' as reported by Reuters. On the other hand, Cleveland Federal Reserve Bank President Loretta Mester said, "I will decide my preferred size of rate hike at the September meeting itself." On the other hand, EU President von Der Leyen sounds pessimistic as she said the previous day that 50% of the EU's aluminum and zinc capacity has already been forced offline due to the power crisis.

Additionally, the CME’s FedWatch Tool signals a 77% chance of the Fed’s 75 basis points (bps) rate hike in September, versus 73% marked the previous day.

Looking forward, the Swiss Unemployment Rate for August, expected to remain unchanged at 2.2%, could offer immediate directions ahead of the ECB’s monetary policy meeting which is likely to unveil 0.75% rate hike from the bloc’s central bank and weigh on the US dollar. However, broad pessimism surrounding the old continent and the ECB’s limited capacity to become hawkish, as compared to Fed, seems to favor the USD/CHF buyers.

Technical analysis

Unless breaking a one-month-old support line, at 0.9750 by the press time, USD/CHF remains on the buyer’s radar.