USD/CHF fades bounce off 28-month low below 0.8900 as Swiss inflation, US NFP loom

• USD/CHF struggles to defend the corrective bounce off the lowest levels since January 2021.
• Risk aversion allows US Dollar to pare Fed-induced losses.
• Banking woes, mixed US data contribute in sour sentiment.
• US NFP, Swiss Unemployment Rate and Swiss CPI will be crucial for immediate directions.

USD/CHF lacks clear direction around 0.8855 during early Friday in Asia, following a corrective bounce off a 28-month low, as traders await the key US and Swiss data. That said, sour sentiment underpins the US Dollar’s haven demand but a broad US Dollar weakness lure the pair sellers of late, especially amid the dovish Federal Reserve (Fed) interest rate hike.

Having witnessed the Fed’s hints for policy pivot, as well as the US Dollar’s fall despite the rate hike of 25 basis points, the USD/CHF pair traders cheered the risk-off mood to trigger a corrective bounce from the multi-month low.

The Swiss currency pair’s rebound could be linked to the US Dollar’s recovery amid mixed data and escalating fears surrounding the US banking sector and the debt ceiling expiry.

On Thursday, preliminary readings of Nonfarm Productivity and Unit Labor Cost for the first quarter (Q1) of 2023 came in mixed. That said, Nonfarm Productivity dropped to -2.7% in Q1 from 1.6% prior and -1.8% market forecasts whereas the Unit Labor Cost jumped to 6.3% versus 5.5% expected and 3.3% prior. Further, the US Goods and Services Trade Balance improved to $-64.2B from $-70.6B prior and $-63.3B market forecast. Further, Initial Jobless Claims edge higher to 242K for the week ended on April 28 versus 240K expected and 229K in previous readings.

It’s worth noting that Reuters quotes Fed data suggesting that a large part of the central bank's emergency lending activities in recent weeks were tied up with the now-shuttered First Republic Bank. “Pressure is growing on U.S. regulators to take more steps to shore up the country's banking sector as a renewed rout in regional lenders' shares forced PacWest Bancorp to explore options to bolster its balance sheet,” said Reuters.

While portraying the mood, Wall Street closed negative and the yields were pressured too but the US Dollar bounced off its weekly low.

Moving on, USD/CHF pair has a slew of Swiss data comprising April’s Unemployment Rate, Consumer Price Index and Foreign Reserves to watch before targeting the key US jobs report for the said month. Given the downbeat expectations from the US Nonfarm Payrolls (NFP), the odds of witnessing a surprise outcome and its magnified reaction are high.

Technical analysis

A three-week-old previous support line, near 0.8860 at the latest, restricts corrective bounce off the Swiss currency pair. Meanwhile, the latest bottom of around 0.8820 precedes the year 2021 trough of 0.8757 lures the USD/CHF bears.