USD/CHF slides under 0.9200 level as broad US dollar decline enters third day

• USD/CHF fell under 0.9200 on Wednesday, down another 0.2% and taking weekly losses to about 1.3%.
• US dollar weakness continued for a third day, amid better risk appetite, position squaring and easing Fed tightening bets.

US dollar weakness has continued for a third day on Wednesday, with the buck weighed by the continued improvement in global equity market sentiment, long-position squaring and a paring back of Fed tightening bets. More recently, weak ADP national employment change figures for January have further dented USD sentiment. As a result, USD/CHF dropped back under 0.9200 on Wednesday and is now below both its 21 and 50-day moving averages at the 0.9192 and 0.9198 levels respectively. At current levels close to 0.9190, USD/CHF is off earlier session lows in the 0.9170s, but still trades with on the day losses of about 0.2%.

USD/CHF is now trading roughly 1.3% lower on the week and about 1.6% down versus its Monday highs in the mid-0.9300s. FX market focus has predominantly been on US data, Fed expectations and risk appetite so far this week, but will on Thursday switch to central banks, with the BoE and ECB both reporting. If the ECB sticks to its “transitory” inflation narrative and shrug off upside inflation risks despite Wednesday’s hot Eurozone HICP inflation figures, that could bolster the European safe-haven CHF, which has in the past benefitted from ECB dovishness. Short-term bears may look for USD/CHF to test support in the form of its 200DMA at 0.9164.

Focus will switch back to US data and Fed expectations on Friday when the official US labour market report for January will be released. The headline number is expected to be weak but this shouldn’t faze markets (just as Wednesday’s weak ADP numbers didn’t), with focus instead on wage inflation pressures and measures of labour market slack. If those also show signs of easing in January, then that would be interpreted as easing the pressure on the Fed to tighten so fast in 2022 and would hit the US dollar. Such a scenario could conceivably see USD/CHF hit support in the form of 2022 lows in the 0.9100 area, although some might see the dollar’s drop already this week as somewhat overdone, which may reduce downside risks.