USD/CHF seems vulnerable near two-week low, around 0.9200 mark

• A combination of factors prompted fresh selling around USD/CHF on Tuesday.
• The prevalent risk-off mood benefitted the safe-haven CHF and exerted pressure.
• Declining US bond yields undermined the USD and contributed to the selling bias.

The USD/CHF pair dropped to over a two-week low during the early European session, with bears now awaiting a sustained break below the 0.9200 round-figure mark.

Following the previous day's attempted recovery and a subsequent intraday pullback, the USD/CHF pair met with fresh supply on Tuesday and was pressured by a combination of factors. Worries about the potential economic fallout from the spread of a new vaccine-resistant variant of the coronavirus – Omicron – tempered investors' appetite for perceived riskier assets. This was evident from a sharp fall in the global equity markets, which benefitted the safe-haven Swiss franc and exerted pressure on the major.

Meanwhile, the risk-off impulse, along with reduced bets for an early policy tightening by the Fed, led to a steep decline in the US Treasury bond yields. The latest developments surrounding the coronavirus saga might have dashed hopes for an eventual Fed rate hike by mid-2022 and dragged the yield on the benchmark 10-year US government bond to a near three-week low, back closer to the 1.45% threshold. This, in turn, weighed heavily on the US dollar and further contributed to the USD/CHF pair's downfall.

With the latest leg down, the USD/CHF pair has now retreated nearly 175 pips from a multi-month peak touched last week. Some follow-through selling below the 0.9200 mark will be seen as a fresh trigger for bearish traders and set the stage for additional losses, towards testing the next relevant support near the 0.9155-50 region. Market participants now look forward to the US economic docket, featuring the release of the Conference Board's Consumer Confidence Index later during the early North American session.

The key focus, however, will be on Fed Chair Jerome Powell's testimony before the Senate Banking Committee. Powell's remarks will influence market expectations about the Fed's next policy move and drive the USD demand. Apart from this, traders will further take cues from the broader market risk sentiment to grab some short-term opportunities around the USD/CHF pair.

Technical levels to watch