USD/CHF flirts with 200-DMA support, seems vulnerable near multi-week lows

• USD/CHF came under some renewed selling pressure on Friday and refreshed multi-week lows.
• The USD struggled to capitalize on its intraday gains despite a strong pickup in the US bond yields.
• The prevalent risk-on mood undermined the safe-haven CHF and helped limit any further losses.

The USD/CHF pair dropped to fresh six-week lows, around the 0.9180-75 region during the early European session, albeit recovered few pips thereafter. The pair was last seen hovering around the 0.9200 mark, still down 0.30% for the day.

Following the previous day’s directionless price moves, the pair met with fresh supply on the last trading day of the week and seemed rather unaffected by a modest US dollar strength. The USD remained supported by Thursday’s upbeat US economic data, which indicated that recovery is well on track, and got an additional boost from a solid bounce in the US Treasury bond yields.

It is worth reporting that the yield on the benchmark 10-year US government bond tumbled to a one-month low amid expectations that the Fed will keep interest rates near zero levels for a longer period. Investors now seem convinced with the Fed’s view that higher inflation will be transitory and have also started looking through the headline-grabbing US economic releases.

This, in turn, kept a lid on any strong gains for the USD, rather led to a modest intraday pullback, which was seen as a key factor that prompted some fresh selling around the USD/CHF pair. However, the underlying bullish sentiment in the financial markets undermined demand for the safe-haven Swiss franc and helped limit any further losses, at least for the time being.

Hence, it will be prudent to wait for sustained weakness below the very important 200-day SMA before positioning for any further near-term depreciating move. A convincing breakthrough will set the stage for an extension of the recent sharp pullback from multi-month tops, around the 0.9470-75 region touched earlier April.

Market participants now look forward to the US economic docket, featuring the releases of Housing Starts, Building Permits and prelim Michigan Consumer Sentiment Index. This, along with the US bond yields, will influence the USD. Apart from this, the broader market risk sentiment might further contribute to produce some trading opportunities around the USD/CHF pair.

Technical levels to watch