• USD/CHF witnessed modest intraday pullback from the fresh YTD high touched earlier this Tuesday.
• Retreating US bond yields kept the USD bulls on the defensive and prompted some profit-taking.
• The risk-on impulse to undermine the safe-haven CHF and limit losses amid hawkish Fed expectations.

The USD/CHF pair extended its intraday retracement slide from a three-year high and dropped to the 0.9900 neighbourhood during the early North American session.

The pair witnessed a turnaround from the 0.9975 region, or its highest level since May 2019 touched earlier this Tuesday and for now, seems to have snapped a three-day winning streak. The ongoing corrective slide in the US Treasury bond yields undermined the US dollar and prompted traders to lighten their bullish bets around the USD/CHF pair. Apart from this, the downtick lacked any obvious fundamental catalyst and is more likely to remain limited amid the prospects for a more aggressive policy tightening by the Fed.

Investors seem convinced that the Fed would need to take more drastic action to bring inflation under control. In fact, the markets are still pricing in a further 200 bps rate hike for the rest of 2022. Adding to this, concerns about rapidly rising consumer prices should act as a tailwind for the US bond yields. Hence, the focus remains glued to the release of the US CPI report on Wednesday. Nevertheless, the fundamental backdrop favours the USD bulls and supports prospects for the emergence of some dip-buying around the USD/CHF pair.

Furthermore, a generally positive tone around the equity markets, which tends to drive flows away from the safe-haven Swiss franc, validates the positive outlook for the USD/CHF pair. Hence, it will be prudent to wait for strong follow-through selling before traders start positioning for any meaningful corrective slide. In the absence of any major market-moving economic releases, the US bond yields will influence the USD demand. This, along with the broader market risk sentiment, should provide some trading impetus to the USD/CHF pair.

Technical levels to watch