USD/CHF pares intraday gains, downside seems cushioned amid resurgent USD demand

• USD/CHF gained some positive traction on Thursday, though lacked follow-through buying.
• Fading hopes for diplomacy in Ukraine drove some haven flows to the CHF and capped gains.
• The emergence of aggressive USD buying helped limit the downside, at least for the time being.

The USD/CHF pair retreated a few pips from the daily high touched during the early European session and was last seen trading around the 0.9235-0.9240 region, up less than 0.10% for the day. 

The pair attracted some buying in the vicinity of the very important 200-day SMA on Thursday and recovered a part of the overnight slump to over a three-week low. The uptick, however, lacked bullish conviction and ran out of steam near the 0.9260 area amid fading hopes for a diplomatic solution to end the war in Ukraine, which benefitted drive haven flows towards the Swiss franc.

In fact, a Kremlin spokesperson said that they have not noticed anything that looks like a breakthrough in negotiations. Moreover, an adviser to Ukraine’s President noted that Russia is transferring forces from Kyiv to encircle troops and launch attacks in the eastern part of the country. This, along with prospects of new Western sanctions against Russia, underpinned safe-haven assets.

The downside, however, seems cushioned, at least for the time being, amid the emergence of aggressive buying around the US dollar, bolstered by hawkish Fed expectations. The markets seem convinced that the Fed would adopt a more aggressive policy stance and hike rates by 50 bps at the next two meetings to combat stubbornly high inflation. This, in turn, underpinned the buck.

Even from a technical perspective, it will be prudent to wait for sustained break below a technically significant moving average before positioning for an extension of the recent pullback from the YTD top. Market participants now look forward to the US economic docket, highlighting the release of the Core PCE Price Index, though the focus will remain on geopolitical developments.

Technical levels to watch