USD/CHF eases from over one-week high, still well bid above mid-0.9300s

• USD/CHF gained strong positive taction on Monday and was supported by a combination of factors.
• A generally positive risk tone undermined the safe-haven CHF and acted as a tailwind for the major.
• Hawkish Fed expectations continued lending some support to the USD and remained supportive.

The USD/CHF pair maintained its bid tone through the first half of the European session and was seen trading around the 0.9355-0.9360 region - just a few pips below the one-week high touched in the last hour.

A combination of supporting factors assisted the USD/CHF pair to build on Friday's goodish rebound from over a two-week low and gain strong positive traction on the first day of a new week. A generally positive tone around the equity markets undermined the safe-haven Swiss franc. This, along with sustained US dollar buying, acted as a tailwind for the major.

Ukrainian President Volodymyr Zelensky said on Sunday that they are prepared to discuss adopting a neutral status as part of a peace deal with Russia. This raised hopes for a diplomatic solution to end the war ahead of the Russia-Ukraine ceasefire talks in Turkey later this week and boosted investors' confidence and undermined demand for traditional safe-haven assets.

On the other hand, the USD continued drawing support from growing acceptance that the Fed would adopt a more aggressive policy response to combat stubbornly high inflation. In fact, the markets have been pricing in a 50 bps rate hike move at the May meeting. This, in turn, pushed the yield on the benchmark 10-year US government bond beyond 2.5%, or a nearly three-year high.

The fundamental backdrop favours bullish traders, though the lack of follow-through buying beyond the 0.9380 region warrants some caution. Hence, it will be prudent to wait for sustained strength above the said area before traders start positioning for a further near-term appreciating move, towards retesting the YTD peak, around the 0.9460 area touched earlier this month.

There isn't any major market-moving economic data due for release from the US on Monday, leaving the USD at the mercy of the US bond yields. Traders will further take cues from fresh developments surrounding the Russia-Ukraine saga and the broader market risk sentiment. This will influence the safe-haven CHF and produce meaningful trading opportunities around the USD/CHF pair.

Technical levels to watch