USD/CHF recovers a major part of its early lost ground, down little around mid-0.9100s

• USD/CHF edged lower for the second successive day, though the downside seems cushioned.
• A softer risk tone underpinned the safe-haven CHF and exerted some pressure on the major.
• Elevated US bond yields acted as a tailwind for the USD and helped limit any deeper losses.

The USD/CHF pair recovered a major part of its early lost gound and was last seen trading with only modest intraday losses, around mid-0.9100s during the first half of the European session.

The pair extended the previous day's retracement slide from the weekly swing high, around the 0.9175 region and edged lower for the second successive day on Thursday. A weaker tone around the European equity markets underpinned the safe-haven Swiss franc, which, in turn, was seen as a key factor that exerted pressure on the USD/CHF pair.

On the other hand, elevated US Treasury bond yields, bolstered by the prospects for a faster policy tightening by the Fed, acted as a tailwind for the US dollar. This, in turn, helped limit any further losses for the USD/CHF pair, warranting some caution for aggressive bearish traders and before positioning for any further depreciating move.

Investors seem convinced that the Fed would begin raising interest rates soon and have fully priced in an eventual lift-off in March to combat stubbornly high inflation. The expectations were reaffirmed by last week's data, which showed that the headline US CPI surged to the highest level since June 1982 and core CPI registered the biggest advance since 1991.

Hence, the market focus will remain glued to the upcoming FOMC monetary policy meeting on January 25-26. The outcome will be looked upon for clearer signals about the likely timing when the Fed will be commencing its rate hike cycle. This will influence the near-term USD price dynamics and provide a fresh directional impetus to the USD/CHF pair.

In the meantime, traders on Thursday will take cues from the US macro releases – the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and Existing Home Sales data. This, along with the US bond yields, will drive the USD demand. Apart from this, the broader market risk sentiment should produce some trading opportunities around the USD/CHF pair.

Technical levels to watch