USD/CHF corrects further from multi-week high, flirts with 0.9800 mark ahead of US data

• USD/CHF moved further away from a multi-week high amid subdued USD price action.
• Less hawkish remarks by Fed officials, declining US bond yields weighed on the USD.
• The downside seems cushioned as traders await US macro data for a fresh impetus.

The USD/CHF pair extended the previous day's late pullback from the 0.9885 region, or a multi-week high and witnessed some follow-through selling on Friday. The steady descent extended through the early European session and dragged spot prices to the 0.9800 round-figure mark.

The US dollar was seen consolidating below a two-decade high touched on Thursday, which, in turn, was seen as a key factor exerting downward pressure on the USD/CHF pair. Two of the Federal Reserve's most hawkish policymakers said on Thursday they favoured another 75 bps rate hike late this month, rather than an even bigger move priced in the markets and prompted some USD profit-taking.

In fact, investors raised their bets for a supersized Fed rate hike move after data released on Wednesday showed that the US consumer inflation in June accelerated to a four-decade high. The less hawkish remarks by Fed Governor Christopher Waller and St. Louis Fed President Jim Bullard, however, forced investors to scale back their expectations for a more aggressive policy tightening.

Apart from this, a further decline in the US Treasury bond yields was seen as another factor that kept the USD bulls on the defensive. The downside, however, remains cushioned as investors preferred to wait on the sidelines ahead of the key US macro releases - the monthly Retail Sales data, Empire State Manufacturing Index, Industrial Production data and Michigan Consumer Sentiment Index.

Hence, it will be prudent to wait for strong follow-through selling before confirming that the recent strong rebound from sub-0.9500 levels has run out of steam. Nevertheless, the USD/CHF pair remains on track to end in the green for the third straight week, though would need to find acceptance above the 0.9855-0.9860 area before traders start positioning for any further gains.

Technical levels to watch