USD/CHF sticks to modest gains near 1.0050, just below the highest level since May 2019

• USD/CHF holds steady near a multi-year peak, though lacks follow-through buying.
• A modest USD pullback holds back bulls from placing fresh bets and caps the upside.
• Aggressive Fed rate hike bets and elevated US bond yields still favour the USD bulls.

The USD/CHF pair trades with a positive bias for the second successive day on Thursday and is currently placed near the 1.0045-1.0050 area, just below its highest level since May 2019.

A combination of diverging forces, however, is holding back bulls from placing fresh bets and keeping a lid on any further gains, at least for the time being. A recovery in the US equity futures undermines the safe-haven Swiss franc and acts as a headwind for the USD/CHF pair. That said, a modest US dollar pullback offsets the supporting factor and caps the upside.

The USD downtick, meanwhile, lacks any obvious catalyst and is more likely to remain limited amid the prospects for more aggressive policy tightening by the Federal Reserve. The markets are currently pricing a nearly 100% chance for another supersized 75 bps Fed rate hike move in November. This, in turn, remains supportive of elevated US Treasury bond yields.

In fact, the rate-sensitive 2-year US government bond stands tall near a 15-year peak and the benchmark 10-year Treasury note rises to its highest level since the 2008 financial crisis. The fundamental backdrop supports prospects for the emergence of some USD dip-buying and an eventual breakout for the USD/CHF pair beyond the 1.0065-1.0075 strong resistance zone.

Market participants now look forward to the US economic docket, featuring the release of the Philly Fed Manufacturing Index, the usual Weekly Initial Jobless Claims and Existing Home Sales data. This, along with speeches by influential FOMC members and the US bond yields, will drive the USD demand and produce short-term trading opportunities around the USD/CHF pair.

Technical levels to watch