USD/CHF drifts back closer to monthly low, bears now await break below mid-0.9500s

• USD/CHF turned lower for the fifth straight day and dropped back closer to the monthly low.
• The SNB’s surprise hawkish shift continued underpinning the CHF and exerted some pressure.
• A softer tone surrounding the USD was seen as another factor that added to the selling bias.

The USD/CHF pair struggled to capitalize on its modest intraday uptick and met with a fresh supply near the 0.9630-0.9635 region on the last day of the week. The downtick - marking the fifth successive day of a negative move - dragged spot prices to the 0.9565-0.9560 area, back closer to the monthly low during the mid-European session.

The Swiss National Bank (SNB) surprised markets with a 50 bps rate hike at the end of the June policy meeting last week and left the door open for further rate hikes to counter rising inflation. This, in turn, continued underpinning the Swiss franc, which, along with a softer tone surrounding the US dollar exerted some downward pressure on the USD/CHF pair.

The worsening global economic outlook forced market participants to bring forward the likely timing of rate cuts to counter a possible recession. It is worth recalling that the Fed has forecasted the rate to decline to 3.4% in 2024 and 2.5% over the long run from the 3.8% in 2023. The repricing in the market was seen as a key factor that undermined the USD.

Investors, however, seem convinced that the Fed would stick to its aggressive policy tightening path in the near term to curb soaring inflation. This, along with an uptick in the US bond yields, should act as a tailwind for the USD. Apart from this, the risk-on impulse might undermine the safe-haven CHF and further contribute to limiting the downside for the USD/CHF pair.

Hence, it will be prudent to wait for a convincing break below the 0.9550 horizontal support before traders start positioning for an extension of the recent sharp pullback from the vicinity of the YTD peak. Next on tap is the US economic docket, featuring the release of the revised Michigan Consumer Sentiment Index and New Home Sales data.

This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the USD/CHF pair. Traders will further take cues from the broader risk sentiment to grab some short-term opportunities on the last day of the week.

Technical levels to watch