USD/CHF flirts with monthly low, bears looking to seize control below 200-DMA

• USD/CHF came under renewed selling pressure and dropped to a fresh monthly low on Tuesday.
• The risk-on mood could undermine the safe-haven CHF and help limit deeper losses for the pair.
• A break below the 0.9155 area will validate 200-DMA breakdown and set the stage for further losses.

The USD/CHF pair maintained its offered tone heading into the North American session and was last seen trading near the monthly low, around the 0.9160 region.

Having faced rejection near the 0.9200 mark on the first day of the current week, the USD/CHF pair met with a fresh supply on Tuesday and now seems to have found acceptance below the 200-day SMA. The downtick lacked any obvious fundamental catalyst and could be attributed to subdued US dollar demand, though a combination of factors might help limit deeper losses.

Global risk sentiment remained well supported by reports that the new COVID-19 strain may be less severe than the previous Delta variant. Adding to this, a study that Omicron infections are less likely to lead to hospitalization helped ease fears over the economic impact of the continuous surge in new cases and further boosted investors' sentiment.

The upbeat market mood was evident from a generally positive tone around the equity markets, which tends to undermine demand for the safe-haven Swiss franc. The risk-on flow was reinforced by a modest uptick in the US Treasury bond yields. This, along with the Fed's hawkish outlook, could act as a tailwind for the greenback and the USD/CHF pair.

From a technical perspective, sustained weakness below a technically significant 200-day SMA could be seen as a fresh trigger for bearish traders. Some follow-through selling below the November monthly swing low, around the 0.9155 region, will reaffirm the negative bias and set the stage for a further near-term depreciating move for the USD/CHF pair.

Next on tap is the release of the Richmond Manufacturing Index from the US. Apart from this, the US bond yields will influence the USD price dynamics and provide some impetus to the USD/CHF pair. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities amid thin end-of-year liquidity conditions.

Technical levels to watch