USD/CHF sticks to modest gains around mid-0.9300s, lacks bullish conviction

• USD/CHF regained positive traction on Wednesday amid the emergence of some USD buying.
• Elevated US bond yields, the Fed’s hawkish outlook continued acting as a tailwind for the buck.
• Modest pullback in the equity markets benefitted the safe-haven CHF and capped the upside.

The USD/CHF pair maintained its bid tone through the early European session and was last seen trading around the 0.9245 region, just a few pips below the daily high touched in the last hour.

Following the overnight sharp turnaround from the 0.9375 region, the USD/CHF pair regained positive traction on Wednesday and was supported by the emergence of some buying around the US dollar. The recent runaway rally in the US Treasury bond yields acted as a tailwind for the greenback. This, in turn, extended support to the major, though the uptick lacked bullish conviction.

The sell-off in the US bond market gathered pace after Fed Chair Jerome Powell suggested that the US central bank could adopt a more aggressive stance to combat inflation. Moreover, San Francisco Fed President Mary Daly noted that it was time to remove policy accommodation, while St. Louis Fed President James Bullard and Cleveland’s Loretta Mester called for faster hikes.

The markets were quick to price in a 50 bps rate hike at the next FOMC meeting and pushed the yield on the 10-year US bond to the highest level since 2019, which helped limit the downside for the buck. That said, a modest pullback in the equity markets drove some haven flows towards the Swiss franc and kept a lid on any meaningful upside for the USD/CHF pair, warranting caution for bulls.

Hence, it will be prudent to wait for strong follow-through buying before confirming that the pair has bottomed out and positioning for an extension of this week's bounce from sub-0.9300 levels. Nevertheless, the USD/CHF pair, so far, has managed to hold with modest intraday gains as traders look forward to Fed Chair Jerome Powell's remarks for some short-term opportunities.

Technical levels to watch