• USD/CHF extends the overnight pullback from a multi-year high amid a modest USD weakness.
• A further pullback in the US bond yields seems to weigh on the buck and exerts some pressure.
• A combination of factors could offer support to the pair and warrants caution for bearish traders.

The USD/CHF pair edges on the last day of the week and retreats further from its highest level since May 2019, around the 1.0075 region touched on Thursday. The pair remains depressed through the early European session and is currently placed near the daily low, around the 0.9965 area.

The US dollar extends the overnight pullback from the post-US CPI swing high and continues losing ground for the second straight day amid some follow-through slide in the US Treasury bond yields. This, in turn, exerts some downward pressure on the USD/CHF pair. That said, a combination of factors might hold back traders from placing aggressive bearish bets.

The US Bureau of Labor Statistics reported that the core inflation (excluding food and energy prices) registered the biggest gain since August 1982 and accelerated to the 6.6% YoY rate in September. This comes on the back of more hawkish cues from the FOMC minutes on Wednesday and reinforced bets for the fourth consecutive 75bps Fed rate hike in November.

Growing acceptance that the Fed will tighten its monetary policy at a faster pace should act as a tailwind for the US bond yields and the buck, warranting caution for bearish traders. Apart from this, the risk-on impulse - as depicted by a positive tone around the equity markets - could undermine the safe-haven Swiss franc and lend support to the USD/CHF pair.

Hence, it will be prudent to wait for strong follow-through selling before confirming that the recent positive move witnessed over the past week or so has run out of steam. Market participants now look forward to the US economic docket, featuring the release of monthly Retail Sales figures, the Prelim Michigan Consumer Sentiment and Inflation Expectations Index.

Apart from this, the US bond yields and speeches by influential FOMC members will play a key role in driving the USD demand later during the early North American session. Traders will take cues from the broader market risk sentiment to grab short-term opportunities around the USD/CHF pair on the last day of the week.

Technical levels to watch