USD/CHF was seen consolidating its recent strong bullish run to a nearly two-year high. Aggressive Fed rate hike bets continued underpinning the USD and acted as a tailwind. A positive risk tone weighed on the safe-haven CHF and further extended some support. Investors now eye US ISM PMI for some impetus, though the focus remains on FOMC.
The USD/CHF pair seesawed between tepid gains/minor losses through the first half of the European session and was last seen trading in neutral territory, around the 0.9725 region.
The pair quickly reversed a modest bearish gap opening to sub-0.9700 levels on the first day of a new week, albeit struggled to capitalize on the move further beyond the 0.9750 region. The growing market conviction that the Fed would tighten its monetary policy at a faster pace to curb soaring inflation remained supportive of elevated US Treasury bond yields. This, in turn, continued acting act as a tailwind for the US dollar and the USD/CHF pair.
Apart from this, a generally positive tone around the equity markets undermined traditional safe-haven assets, including the Swiss franc and offered additional support to spot prices. Despite the support factors, bulls seemed reluctant to place aggressive bets and preferred to wait for the outcome of the two-day FOMC monetary policy meeting. The Fed is scheduled to announce its decision on Wednesday and is widely expected to hike interest rates by 50 bps.
Hence, the focus will be on the Fed's plan to reduce the size of its balance sheet. Apart from this, investors will take cues from this week's important US macro data, including the closely watched US monthly jobs report (NFP) scheduled at the start of a new month. A rather busy week kicks off with the release of the US ISM Manufacturing PMI, which, along with the US bond yields, will influence the USD and provide some impetus to the USD/CHF pair.
From a technical perspective, the rangebound price action witnessed over the past three sessions or so could be categorized as a bullish consolidation phase. Moreover, the fundamental backdrop supports prospects for an extension of over a one-month-old upward trajectory, suggesting that any meaningful dip would still be seen as a buying opportunity. Sustained strength beyond the mid-0.9700s will reaffirm the positive bias and pave the way for additional gains.
