USD/CHF drops to fresh monthly low, challenges 200-DMA around 0.9175 area

• A combination of factors dragged USD/CHF to a fresh monthly low on the first day of a new week.
• A broad-based USD weakness was seen as a key factor that acted as a headwind for the major.
• The early optimism in the markets faded quickly and boosted demand for the safe-haven CHF.

The USD/CHF pair dropped to a fresh monthly low during the first half of the European session and was last seen flirting with the 200-day SMA, around the 0.9175 region.

The pair struggled to capitalize on its early uptick, instead met with a fresh supply near the 0.0.9215 region on Monday and now seems set to prolong its recent downfall witnessed over the past week or so. The US dollar came under some renewed selling pressure amid expectations that the Fed would adopt a less aggressive policy stance to combat stubbornly high inflation. Apart from this, Russia-Ukrain tensions benefitted the Swiss franc's relative safe-haven status and further contributed to the USD/CHF pair's intraday decline.

The early optimistic move in the equity markets faded rather quickly after a Kremlin spokesperson said that there were no concrete plans yet for a Putin-Biden meeting. Apart from this, the market fears about an imminent Russian invasion of Ukraine continued lending some support to traditional safe-haven assets. In fact, satellite images showed multiple new deployments of Russian military units near the border with Ukraine.

Moreover, Russia extended military drills in Belarus that were due to end on Sunday. Hence, the focus will be on the upcoming meeting between the US Secretary of State Antony Blinken and Russian Foreign Minister Sergei Lavrov planned for February 24. In the meantime, investors will keep a close eye on developments surrounding the Ukraine conflict, which will influence the risk sentiment and provide some impetus to the USD/CHF pair.

From a technical perspective, sustained break below a technically significant 200-day SMA might be seen as a fresh trigger for bearish traders. This, in turn, will set the stage for a further near-term depreciating move for the USD/CHF pair amid absent relevant market moving economic releases. The pair could then accelerate the downward momentum and aim back to challenge the 0.9100 round-figure mark in the near term.

Technical levels to watch