USD/CHF flirts with weekly high, bulls await sustained strength beyond 50 DMA

• USD/CHF climbs to a fresh weekly high on Friday amid a goodish pickup in the USD demand.
• Bets for aggressive Fed rate hikes, elevated US bond yields continue to underpin the buck.
• The risk-off mood benefits the safe-haven CHF and caps any meaningful upside for the major.

The USD/CHF pair catches fresh bids on Friday and hits a fresh weekly high during the early European session. Bulls, however, struggle to capitalize on the move or find acceptance above the 50-day SMA and the intraday move-up stalls just ahead of the mid-0.9600s.

The US dollar is back in demand and reverses an early dip to a multi-day low, which turns out to be a key factor pushing the USD/CHF pair higher. Expectations that the Federal Reserve will hike interest rates at a faster pace to tame inflation continue to lend support to the USD. The bets were reaffirmed by the stronger US CPI report on Tuesday.

In fact, the markets have been pricing in the possibility of a full 100 bps rate hike at the upcoming FOMC policy meeting on September 20-21 and another supersized 75 bps increase in November. This remains supportive of elevated US Treasury bond yields, which continue to act as a tailwind for the greenback and lend support to the USD/CHF pair.

That said, the risk-off impulse - as depicted by a fresh leg down in the equity markets - drives some haven flows towards the Swiss franc and caps gains for the USD/CHF pair. The market sentiment remains fragile amid concerns that rising interest rates and headwinds stemming from fresh COVID-19 curbs in China will lead to a deeper economic downturn.

Investors might also prefer to move to the sidelines ahead of next week's central bank event risks. The Fed is scheduled to announce its policy decision on Wednesday and will be followed by the Swiss National Bank (SNB) meeting on Thursday. This makes it prudent to wait for some follow-through buying before positioning for any further appreciating move.

Technical levels to watch