USD/CHF struggles to gain any meaningful traction, remains below mid-0.9200s

• A combination of factors assisted USD/CHF to gain some positive traction on Wednesday.
• Rallying US bond yields revived the USD demand and extended some support to the major.
• The dominant risk-on mood undermined the safe-haven CHF and contributed to the uptick.
• The lack of any strong follow-through buying warrants caution for aggressive bullish traders.

The USD/CHF pair traded with a mild positive bias through the first half of the European session and refreshed daily tops, around mid-0.9200s in the last hour, albeit lacked follow-through.

Following an early dip to the 0.9210 area, the USD/CHF pair caught some bids on Wednesday and moved further away from one-month lows, around the 0.9185 region touched in the previous day. The uptick was sponsored by a modest pickup in the US dollar demand and the dominant risk-on mood, which tends to undermine the safe-haven Swiss franc.

The USD drew some support from a further rise in the US Treasury bond yields, bolstered by the growing acceptance that the Fed will soon begin tapering its bond purchases. In fact, the yield on the benchmark 10-year US government bond shot to the highest level since May, around 1.672% on Wednesday and acted as a tailwind for the greenback.

Moreover, the markets also seem to have started pricing in the possibility of an interest rate hike in 2022 amid worries about a faster-than-expected rise in inflation. Despite hawkish Fed expectations, the USD uptick lacked bullish conviction and so far, has failed to assist the USD/CHF pair to capitalize on its modest intraday gains.

Looking at the broader picture, the USD/CHF pair has been oscillating in a familiar trading range over the past one week or so. This further makes it prudent to wait for a strong follow-through buying before confirming that the recent corrective pullback has run its course and positioning for any meaningful appreciating move.

In the absence of any major market-moving US economic releases, traders will take cues from scheduled speeches by Chicago Fed President Charles Evans and Fed Governor Randal Quarles. This, along with the US bond yields, will influence the USD. Apart from this, the broader market risk sentiment might provide some impetus to the USD/CHF pair.

Technical levels to watch