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As USD Selling Continues Unabated, USD/CHF Falls To a Two-Month Low, Below Mid-0.8800s
The USD/CHF pair falls for the fourth consecutive day and reaches a two-month low. Bets that the Fed will soften its hawkish posture weigh and exert pressure on the USD. A modest improvement in risk sentiment could weaken the CHF and provide support.
During the Asian session on Tuesday, the USD/CHF pair remains under some selling pressure for the fourth consecutive day and falls to a two-month low around 0.8845.
The US Dollar (USD) bulls are on the defensive near its lowest level since June 22 due to expectations that the Federal Reserve (Fed) will soften its hawkish posture sooner rather than later, which is viewed as a headwind for the USD/CHF pair. In fact, two Fed officials stated on Monday that the current cycle of monetary policy tightening is nearing its conclusion. This resulted in an overnight decline in US Treasury bond yields and has proven to be a significant factor bearing on the Greenback.
Fed speakers noted, however, that the US central bank will likely need to increase interest rates further in order to reduce inflation. In addition, Friday's employment report for the United States revealed an unexpected decline in the unemployment rate and persistently robust wage growth. This indicates that labour market conditions remain constrained and supports the likelihood of additional Fed policy tightening, which should limit any significant decline in US bond yields and the Greenback.
Aside from this, a modest recovery in global risk sentiment, as indicated by a generally positive tone on equity markets, could weaken the safe-haven Swiss Franc (CHF) and support the USD/CHF exchange rate. In addition, the Relative Strength Index (RSI) on hourly charts is indicating oversold conditions, which may discourage traders from placing aggressive bearish wagers on the major prior to Wednesday's publication of the latest US consumer inflation data.
In the absence of market-moving economic data from the United States, a subsequent decline is more likely to find support near 0.8820 or the May low for the year. The aforementioned fundamental environment, however, suggests that the USD/CHF pair's path of least resistance is to the downside. Consequently, any meaningful recovery attempt risks being viewed as a selling opportunity and rapidly fading away.
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