USD/CHF dives to two-week low, eyeing 0.9700 amid risk-off/broad-based USD weakness

• A combination of factors dragged USD/CHF lower for the third successive day on Thursday.
• The risk-off mood benefitted the safe-haven CHF and exerted pressure amid a weaker USD.
• Disappointing US macro data did little to impress the USD bulls or lend support to the pair.

The USD/CHF pair extended this week's retracement slide from the 1.0065 area, or a two-year peak and witnessed aggressive selling for the third successive day on Thursday. The bearish pressure remained unabated through the early North American session and dragged spot prices to a two-week low, around the 0.9720-0.9715 region in the last hour.

Investors remain concerned that a more aggressive move by major central banks to constrain inflation could hit global economic growth. Adding to this, extended COVID-19 lockdowns in China and the Russia-Ukraine war have been fueling recession fears. This, in turn, took its toll on the risk sentiment and forced investors to take refuge in traditional safe-haven assets, which benefitted the Swiss franc and exerted downward pressure on the USD/CHF pair.

The anti-risk flow triggered modest pullback in the US Treasury bond yields. Moreover, the markets now seem to have fully priced in at least a 50 bps rate hike move over the next two FOMC meetings. This, in turn, prompted fresh selling around the US dollar, which further contributed to the heavily offered tone surrounding the USD/CHF pair. The USD maintained its offered tone and failed to gain any respite from disappointing US macro releases.

In fact, the Federal Reserve Bank of Philadelphia reported that the headline Manufacturing Activity Index fell slid to 2.6 in May from 17.6 last month. This was well below consensus estimates pointing to a reading of 16.0. Adding to this, the Initial Weekly Jobless Claims rose to 218K during the week ending on May 14, above the 200K expected and the 197K previous. Thursday's US economic docket also features the release of Existing Home Sales.

Nevertheless, the data might do little to impress the USD bulls or lend any support to the USD/CHF pair. With the latest leg down, spot prices have now reversed a major part of the monthly gains recorded over the past two weeks or so. Some follow-through selling below the 0.9700 mark will set the stage for a deeper corrective pullback. Bearish traders might then aim to test the next major support, just ahead of the 0.9500 psychological mark.

Technical levels to watch