• USD/CHF witnessed a corrective pullback from a two-year low amid modest USD weakness.
• The risk-on mood could undermine the safe-haven CHF and help limit any meaningful slide.
• Aggressive Fed rate hike bets, a goodish rebound in US bond yields also favour the USD bulls.

The USD/CHF pair dropped to a fresh daily low during the early European session and might now be looking to extend the corrective pullback further below the 1.0000 psychological mark.

The pair edged lower on the last day of the week and has now eroded a part of the overnight strong move up to the 1.050 area, or its highest level since May 2019. The downtick could be solely attributed to some profit-taking amid modest US dollar pullback from a two-decade high, though a combination of factors should help limit any meaningful downfall.

A relief rally in the global equity markets could undermine the safe-haven Swiss franc and act as a tailwind for the USD/CHF pair. The risk-on impulse was reinforced by a solid rebound in the US Treasury bond yields, which, along with the prospects for a more aggressive policy tightening by the Fed, should lend support to the buck and the USD/CHF pair.

Fed chair Jerome Powell also reaffirmed on Thursday that the central bank is ready to raise interest rates by 50 bps at each of the next two policy meetings. Powell further pledged that the Fed was prepared to do more to curb soaring inflation. Nevertheless, the fundamental backdrop still seems tilted firmly in favour of the USD bulls.

Hence, it will be prudent to wait for strong follow-through selling before confirming that the USD/CHF pair has topped out in the near term and positioning for a deeper corrective slide. Market participants now look forward to the release of the prelim Michigan Consumer Sentiment Index from the US for a fresh impetus later during the early North American session.

Technical levels to watch