USD/CHF trades with modest gains around 0.9200, downside seems protected

• The risk-on impulse undermined the safe-haven CHF and assisted USD/CHF to gain traction.
• A subdued USD demand held back bulls from placing aggressive bets and capped the upside.
• Rising Fed rate hike bets favours bullish traders and supports prospects for additional gains.

The USD/CHF pair trimmed a part of its intraday gains and was last seen hovering around the 0.9200 mark, up nearly 0.25% for the day.

The pair attracted some buying near the 0.9175-70 region on Wednesday and built on the previous day's bounce from the vicinity of mid-0.9100s, or a near three-week low. The global risk sentiment witnessed a positive turnaround as investors seem convinced that the latest COVID-19 variant would not derail the economic recovery. This was evident from a strong rally in the equity markets, which undermined the safe-haven Swiss franc and provided a modest lift to the USD/CHF pair.

Meanwhile, the US dollar, so far, has struggled to gain any meaningful traction and seesawed between tepid gains/minor losses through the mid-European session. This, in turn, held back traders from placing aggressive bullish bets around the USD/CHF pair and capped the intraday move up. That said, a strong pickup in the US Treasury bond yields, bolstered by rising bets for a more aggressive policy tightening by the Fed, acted as a tailwind for the greenback and the USD/CHF pair.

In fact, the money markets started pricing in the possibility of at least a 50 bps rate hike by the end of 2022 in reaction to the overnight hawkish comments by Fed Chair Jerome Powell. Testifying before the Senate Banking Committee, Powell said that it is appropriate to consider wrapping up the tapering of asset purchases, perhaps a few months sooner. He added that it's time to retire the word transitory and that the risk of persistently higher inflationary pressures has increased.

The fundamental backdrop favours the USD bulls and supports prospects for some meaningful near-term appreciating move for the USD/CHF pair. The positive outlook is reinforced by the fact that bulls have shown some resilience below the very important 200-day SMA, which should now act as a key pivotal point. Hence, a subsequent strength towards an intermediate hurdle near the 0.9230 level, en-route the weekly high around the 0.9270-75 supply zone, remains a distinct possibility.

Market participants now look forward to the US economic docket, featuring the ADP report on private-sector employment and ISM Manufacturing PMI. Traders will further take cues from Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen's joint testimony before the House Financial Services Committee. Apart from this, developments surrounding the coronavirus saga and the broader market risk sentiment might produce some trading opportunities around the USD/CHF pair.

Technical levels to watch