USD/CHF slides to 0.9130-25 area, back closer to two-month lows set on Friday

• USD/CHF met with fresh supply on Monday and eroded a major part of Friday’s recovery gains.
• A modest USD pullback from over two-week tops seemed to be the only factor exerting pressure.
• The downside seems limited amid the risk-on mood, rising US bond yields, hawkish Fed expectations.

The USD/CHF pair extended its steady intraday descent heading into the North American session and dropped to fresh daily lows, around the 0.9130 region in the last hour.

The pair met with some fresh supply on the first day of a new week and has now reversed a major part of Friday's recovery gains from the 0.9100 mark, or two-month lows. The US dollar witnessed a modest intraday pullback following an early uptick to the highest level since October 13. This, in turn, exerted some pressure on the USD/CHF pair, though a combination of factors should help limit deeper losses.

Investors now seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. The speculations were further fueled by Friday's US Core PCE Price Index, which indicated that consumer cost pressures are getting entrenched. Hawkish Fed expectations triggered a fresh leg up in the US Treasury bond yields, which should act as a tailwind for the greenback.

Moreover, investors might also refrain from placing aggressive bets, rather prefer to wait on the sidelines ahead of the critical two-day FOMC monetary policy meeting starting Tuesday. This makes it prudent to wait for a sustained break below the 0.9100 mark before positioning for any further depreciating move. Traders now look forward to the release of the US ISM Manufacturing PMI for some short-term impetus.

Technical levels to watch