- USD/CHF meets fresh supply on Wednesday and falls to the 0.9600 zone.
- Recession fears offer some support to the safe haven CHF and put pressure on the pair.
- Softer US bond yields act as a dollar headwind and contribute to modest weakness.
- Aggressive expectations from the Fed should limit any significant decline in the USD and the pair.
The pair USD/CHF It attracts some selling near the 0.9660-0.9665 region on Wednesday and falls to a fresh daily low during the first half of the European session. The bears are now looking for a sustained break below the 0.9600 round figure before positioning for an extension of the overnight retracement from around 0.9700, or one-month highs.
Investors remain concerned about a slowdown in the global economy on the back of persistently high inflation, tightening financial conditions and headwinds stemming from COVID-19 lockdowns in China. This is evident in a generally weaker tone around equity markets, offering some support to the safe haven Swiss franc and putting some downward pressure on the USD/CHF pair.
However, the decline seems cushioned by the appearance of some US dollar purchases, bolstered by Fed expectations. Investors seem convinced that the Federal Reserve will maintain its tightening policy and have been pricing in at least one rate hike. 50 basis points at the September FOMC meeting. That said, a modest pullback in US Treasury yields caps dollar gains.
The mix of fundamental factors warrants some caution before positioning yourself in a firm direction in the short term. Traders may also prefer to wait on the sidelines ahead of Fed Chairman Jerome Powell’s speech at the Jackson Hole symposium on Friday. Market participants brace for a tougher message and will be looking for clues about a 75 basis point Fed rate hike in September.
Meanwhile, on Wednesday, traders could follow the US economic docket, with Durable Goods Orders and Pending Home Sales data due later in the early American session. This, along with US bond yields, could weigh on the dollar. Aside from this, the overall market risk sentiment should help produce short-term trading opportunities around the USD/CHF pair.
Technical levels to watch
Source: Fx Street
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