USD/CHF remains on the defensive near 0.9400, downside seems cushioned ahead of FOMC

• A broad-based USD weakness exerted prompted some selling around USD/CHF on Wednesday.
• The risk-on impulse undermined the safe-haven CHF and helped limit any meaningful decline.
• The market focus remains glued firmly to the much-awaited FOMC monetary policy decision.

The USD/CHF pair remained on the defensive heading into the North American session and was last seen hovering just a few pips above the daily low, around the 0.9400 mark.

The pair edged lower on Wednesday and snapped four successive days of the winning streak, stalling its recent strong bullish run to the highest level since April 2021 amid a broad-based US dollar weakness. In the absence of a fresh trigger, traders opted to take lighten their bullish USD bets ahead of the highly-anticipated FOMC monetary policy decision. That said, the risk-on impulse undermined the safe-haven Swiss franc and helped limit any deeper losses for the USD/CHF pair, at least for the time being.

Despite the lack of progress in the Russia-Ukraine ceasefire talks, investors remain optimistic about the possibility of a diplomatic solution to end the war. This remained supportive of the prevalent risk-on mood across the global equity markets, which drove flows away from traditional safe-haven assets. Apart from this, the prospects for an imminent start of the policy tightening cycle by the Fed held back bearish traders from placing aggressive bets and extended some support to the USD/CHF pair.

The markets seem convinced that the recent geopolitical developments might do little to hold back the Fed from hiking interest rates to combat high inflation. This was seen as a key factor that pushed the yield on the benchmark 10-year US government bond to the highest level since June 2019. Hence, the focus will remain on the outcome of a two-day FOMC policy meeting, which will influence the near-term USD price dynamics and help determine the next leg of a directional move for the USD/CHF pair.

Technical levels to watch