USD/CHF trades with modest gains around mid-0.9900s, lacks follow-through

• USD/CHF edges higher on Wednesday amid a modest pickup in the USD demand.
• Hawkish Fed expectations, elevated US bond yields act as a tailwind for the buck.
• The risk-on mood undermines the safe-haven CHF and offers support to the pair.

The USD/CHF pair attracts some buying near the 0.9925-0.9930 area on Wednesday and moves away from a one-week low touched the previous day. The pair is currently trading around the mid-0.9900s, though the modest intraday uptick lacks bullish conviction.

The prospects for a more aggressive policy tightening by the Fed assist the US dollar to regain some positive traction, which, in turn, is seen offering some support to the USD/CHF pair. The markets seem convinced that the Fed will continue to hike interest rates at a faster pace to tame inflation and have now priced in a nearly 100% chance of another supersized 75 bps increase in November.

The bets were reaffirmed by hotter US consumer inflation figures released last week and the recent hawkish remarks by several Fed officials. This remains supportive of elevated US Treasury bond yields and continues to act as a tailwind for the greenback. In fact, the yield on the rate-sensitive 2-year US government bond and the benchmark 10-year Treasury note stand tall near a multi-year peak.

Apart from this, the prevalent risk-on environment - as depicted by the follow-through rally in the equity markets - undermines the safe-haven Swiss francs and acts as a tailwind for the USD/CHF pair. Despite the supporting factors, spot prices, so far, have struggled to gain any meaningful traction. This, in turn, warrants some caution before positioning for any further appreciating move.

Nevertheless, the fundamental backdrop seems tilted in favour of bullish traders and suggests that the path of least resistance for the USD/CHF pair is to the upside. Traders now look to the US housing market data - Building Permits and Housing Starts - for a fresh impetus. This, along with the US bond yields, will drive the USD demand and produce short-term opportunities around the USD/CHF pair.

Technical levels to watch