• USD/CHF witnessed heavy selling on Tuesday and dropped to a nearly two-week low.
• The ongoing USD retracement slide from a two-decade high continued to exert pressure.
• Elevated US bond yields, the risk-on impulse could help limit deeper losses for the major.

The USD/CHF pair met with a fresh supply near the 0.9785 area on Tuesday and extended its retracement slide from a multi-week high touched last Thursday. The intraday selling picked up pace during the European session and dragged spot prices to sub-0.9700 levels, or a nearly two-week low.

The US dollar prolonged its profit-taking slide from a two-decade high amid receding bets for a massive 100 bps rate hike move by the Federal Reserve in July. In fact, several FOMC members said last week that they were not in favour of a bigger rate increase that the markets priced in following the release of red-hot US consumer inflation.

The USD was further pressured by a strong pickup in demand for the shared currency, bolstered by reports that the ECB will discuss whether to raise rates by 25 bps or 50 bps at its meeting on Thursday. This, in turn, continued exerting downward pressure on the USD/CHF pair, though a combination of factors might help limit any further losses.

The risk-on impulse - as depicted by a generally positive tone around the equity markets - could undermine the safe-haven Swiss franc and offer some support to the USD/CHF pair. Furthermore, investors seem convinced that the recent surge in US consumer inflation to a four-decade high would force the Fed to deliver a larger rate hike later in the year.

The speculations remained supportive of elevated US Treasury bond yields, which should act as a tailwind for the USD. The fundamental backdrop supports prospects for the emergence of some buying around the USD/CHF pair, warranting some caution for bearish traders and before positioning for any further depreciating move.

Market participants now look forward to the US housing market data - Building Permits and Housing Starts - due later during the early North American session. This, along with the US bond yields, might influence the USD. Traders will further take cues from the broader risk sentiment to grab short-term opportunities around the USD/CHF pair.

Technical levels to watch