USD/CHF slides further below 0.9500 mark amid weaker USD, downside seems cushioned

• USD/CHF witnessed a turnaround from the highest level since June 2020 touched on Wednesday.
• The pullback was exclusively sponsored by modest USD retracement slide from the two-year peak.
• Hawkish Fed expectations, elevated US bond yields should limit losses for the buck and the major.

The USD/CHF pair retreated further from the YTD high set earlier this Wednesday and slipped below the 0.9500 psychological mark during the first half of the European session.

Having touched its highest level since June 2020, the USD/CHF pair witnessed an intraday turnaround from the 0.9535 region and was pressured by modest US dollar pullback from the two-year peak. The USD downtick could be solely attributed to some profit-taking and is more likely to remain limited amid expectations for a more aggressive policy tightening by the Fed.

In fact, the markets seem convinced that the Fed would deliver multiple 50 bps rate hikes by the Fed to keep a lid on soaring inflation. The bets were reaffirmed by hawkish comments by influential FOMC members - St. Louis Fed President James Bullard, Chicago Fed President Charles Evans and Minneapolis Fed President Neel Kashkari - one of the more dovish policymakers.

This, along with concerns over rising inflationary pressures, pushed the yield on the benchmark 10-year US government bond to a level not seen since late 2018. The fundamental backdrop seems tilted firmly in favour of the USD bulls and supports prospects for the emergence of some dip-buying around the USD/CHF pair, warranting caution before positioning for deeper losses.

Market participants now look forward to the US economic docket, featuring the release of Existing Home Sales. This, along with the US bond yields, should influence the USD price dynamics. Traders will further take cues from the broader market risk sentiment, which will drive demand for the safe-haven Swiss franc and provide some impetus to the USD/CHF pair.

Technical levels to watch