USD/CHF drops to over two-month low, below mid-0.8800s as USD selling remains unabated

• USD/CHF drifts lower for the fourth straight day and drops to over a two-month low.
• Bets that the Fed will soften its hawkish stance weigh on the USD and exert pressure.
• A modest recovery in the risk sentiment could undermine the CHF and lend support.

The USD/CHF pair remains under some selling pressure for the fourth straight day on Tuesday and slides to over a two-month low, around the 0.8845 region during the Asian session. 

Speculations that the Federal Reserve (Fed) will soften its hawkish stance sooner rather than later keep the US Dollar (USD) bulls on the defensive near its lowest level since June 22, which, in turn, is seen acting as a headwind for the USD/CHF pair. In fact, two Fed officials said Monday that the end to the current monetary policy tightening cycle is getting close. This led to the overnight pullback in the US Treasury bond yields and turns out to be a key factor weighing on the Greenback.

The Fed speakers, however, noted that the US central bank will likely need to raise interest rates further to bring down inflation. Moreover, the US monthly jobs report released on Friday showed an unexpected dip in the unemployment rate and persistently strong wage growth. This points to still-tight labor market conditions and supports prospects for further policy tightening by the Fed, which should help limit any meaningful downfall for the US bond yields and the Greenback.

Apart from this, a slight recovery in the global risk sentiment - as depicted by a generally positive tone around the equity markets - could undermine the safe-haven Swiss Franc (CHF) and lend some support to the USD/CHF pair. Moreover, the Relative Strength Index (RSI) on hourly charts is flashing oversold conditions and might hold back traders from placing aggressive bearish bets around the major ahead of the release of the latest US consumer inflation figures on Wednesday. 

In the absence of any relevant market-moving economic releases from the US, a subsequent decline is more likely to find some support near the 0.8820 area, or the YTD low touched in May. The aforementioned fundamental backdrop, however, suggests that the path of least resistance for the USD/CHF pair is to the downside. Hence, any meaningful recovery attempt might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly. 

Technical levels to watch