USD/CHF recovers further from two-week low, climbs to 0.9265-70 area

• USD/CHF gained strong positive traction and recovered a part of Friday’s slump to a two-week low.
• The risk-on flow undermined the safe-haven CHF and extended support amid renewed USD strength.
• Expectations for a shift in the Fed’s policy outlook might cap gains for the greenback and the major.

The USD/CHF pair maintained its bid tone through the early European session and climbed to a fresh daily top, around the 0.9270 region in the last hour.

A combination of factors assisted the USD/CHF pair to attract some buying on the first day of a new week and recover a part of Friday's slump to a two-week low, around the 0.9215 region. The global risk sentiment stabilized a bit as investors preferred to wait and see if the new Omicron coronavirus variant would eventually derail the economic recovery. This was evident from a goodish bounce in the equity markets, which undermined the safe-haven Swiss franc and acted as a tailwind for the USD/CHF pair.

Meanwhile, the risk-on flow was reinforced by a strong pickup in the US Treasury bond yields. This helped revive the US dollar demand and further contributed to the USD/CHF pair's move up. That said, the repricing of the likely timing of the Fed's interest rate hike move might hold back the USD bulls from placing aggressive bets and cap any meaningful upside for the major. The detection of a new vaccine-resistant coronavirus variant might have forced investors to reassess the Fed's (hawkish) policy outlook.

Hence, it will be prudent to wait for a strong follow-through buying before confirming that the corrective pullback has run its course and positioning for any further intraday appreciating move. Nevertheless, the USD/CHF pair, so far, has shown some resilience below the 50-day SMA, which should now act as a key pivotal point for short-term traders. Market participants now look forward to the US economic docket, featuring the only release of Pending Home Sales data later during the early North American session.

This, along with the US bond yields, might influence the USD price dynamics and provide some impetus to the USD/CHF pair. The key focus, however, will remain on developments surrounding the coronavirus saga, which will play a key role in driving the broader market risk sentiment and demand for the safe-haven CHF. The combination of factors could, in turn, produce some trading opportunities around the major.

Technical levels to watch