USD/CHF struggles near one-week low, just below 0.9200 amid modest USD weakness

• USD/CHF witnessed some selling on Tuesday and dropped to over a one-week low.
• A modest USD profit-taking slide was seen as a key factor exerting some pressure.
• The cautious mood underpinned the safe-haven CHF and added to the selling bias.
• Hawkish Fed expectations should help limit the USD losses and lend some support.

The USD/CHF pair dropped to over one-week low in the last hour, with bears now looking to extend the downward trajectory further below the 0.9200 round-figure mark.

Following a brief consolidation earlier this Tuesday, the USD/CHF pair met with a fresh supply during the European session and extended the previous day's retracement slide from the 0.9255-65 hurdle. The US dollar witnessed a modest pullback from a one-week high, which, in turn, was seen as a key factor that exerted downward pressure on the USD/CHF pair.

On the other hand, the prevalent cautious mood around the equity markets benefitted the Swiss franc's safe-haven status and further contributed to the USD/CHF pair's intraday slide. Concerns about the potential economic fallout from the imposition of fresh restrictions in Europe and Asia turned out to be a key factor that weighed on investors' sentiment.

This, to a larger extent, overshadowed reports that two doses of the Pfizer-BioNTech vaccine give 70% protection against the new Omicron variant. That said, growing market acceptance that the Fed would tighten its monetary policy sooner rather than later to contain stubbornly high inflation helped limit the downside for the greenback and the USD/CHF pair.

The markets have been pricing in the possibility for an eventual liftoff by June 2022 and another rate hike as early as November. Investors might also refrain from placing aggressive bets, rather prefer to wait on the sidelines ahead of the highly-anticipated FOMC policy decision on Wednesday. This, in turn, warrants some caution for aggressive bearish traders.

Market participants now look forward to the release of the US Producer Price Index (PPI) for some impetus during the early North American session. Traders will take cues from developments surrounding the coronavirus saga, which will influence the broader market risk sentiment and produce some meaningful trading opportunities around the USD/CHF pair.

Technical levels to watch