USD/CHF consolidates above 0.9200, upside potential seems limited amid geopolitical jitters

• USD/CHF lacked any firm directional bias and oscillated in a range on Thursday.
• Russia-Ukraine tensions benefitted the safe-haven CHF and acted as a headwind.
• A goodish pickup in the USD demand extended support and helped limit the fall.

The USD/CHF pair seesawed between tepid gains/minor losses through the first half of the trading on Thursday and was last seen hovering in the neutral territory, around the 0.9220 area.

The pair witnessed some selling during the Asian session and dropped back closer to a near two-week low touched in the previous day amid renewed fears of a Russian invasion of Ukraine. In the latest developments, Russian-backed separatists in eastern Ukraine accused government forces of opening fire on their territory four times in the last 24 hours.

This comes after the United States and NATO said on Wednesday that there were no signs of de-escalation on the ground from the Russian side and led to a fresh leg down in the equity markets. The risk-off mood forced investors to take refuge in traditional safe-haven assets, which benefitted the Swiss franc and exerted some pressure around the USD/CHF pair.

The initial market reaction to the cross-border shooting, however, turned out to be short-lived after details suggested that the incident occurred within the contested area of Donbas. This, along with a goodish pickup in the US dollar demand, helped limit any further losses and assisted the USD/CHF pair to attract some buying in the vicinity of the 0.9200 mark.

The USD uptick, however, lacked strong bullish conviction amid a sharp pullback in the US Treasury bond yields, led by the global flight to safety. Apart from this, Wednesday's less hawkish FOMC meeting minutes, signalling a more measured and data-dependent approach from central bank officials, could act as a headwind for the buck and the USD/CHF pair.

Even from a technical perspective, the overnight downfall confirmed a near-term bearish break through a familiar trading band held over the past one week or so. The fundamental/technical backdrop suggests that the path of least resistance for the USD/CHF pair is to the downside. That said, bearish traders are likely to wait for sustained weakness below the 0.9200 mark.

Market participants now look forward to the US economic docket, featuring the releases of the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and housing market data. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the USD/CHF pair. The focus, however, will remain on geopolitical developments.

Technical levels to watch