USD/CHF keeps the red below 0.9900 mark amid broad-based USD weakness

• USD/CHF continues losing ground for the second straight day and drops to a three-week low.
• Reduced bets for more aggressive Fed rate hikes weigh on the USD and exert some pressure.
• The lack of follow-through selling warrants some caution before positioning for further losses.

The USD/CHF pair remains under some selling pressure for the second successive day on Wednesday and retreats further from its highest level since May 2019 touched last week. The downward trajectory drags spot prices to a three-week low, around the 0.9855 area during the first half of the European session and is sponsored by the heavily offered tone surrounding the US dollar.

In fact, the USD Index, which measures the greenback's performance against a basket of currencies, dives to over a one-month low amid reduced for a more aggressive policy tightening by the Fed. Investors now expect that the US central bank will be forced to soften its hawkish stance amid signs of a slowdown in the world's largest economy. This is evident from a further decline in the US Treasury bond yields, which continues to weigh on the greenback and exerts downward pressure on the USD/CHF pair.

That said, the recent recovery in the global equity markets undermines the safe-haven Swiss franc and assists the USD/CHF pair to find some support in the vicinity of mid-0.9800s. Furthermore, traders might be reluctant to place aggressive bets and prefer to wait for a less hawkish shift from the US central bank. Hence, the focus will remain glued to the two-day FOMC monetary policy meeting next week, which will play a key role in influencing the USD and provide a fresh directional impetus to the major.

In the meantime, traders on Wednesday will take cues from the release of New Home Sales data from the US, which, along with the US bond yields, will drive the USD demand. Apart from this, the broader market risk sentiment might produce short-term trading opportunities around the USD/CHF pair. The focus, however, will be on Thursday's important US macro data, including the Advance Q2 GDP report. The market attention will then shift to the FOMC meeting and the closely-watched US NFP report next week.

Technical levels to watch