USD/CHF retreats from highs as DXY quiets down amid thin volume

• Market volume thins out on Memorial Day.
• The US Dollar Index treads water near 94.40.
• Market sentiment is likely to remain as the primary catalyst on Tuesday.

During the early trading hours of the NA session, the USD/CHF pair was able to gather some bullish momentum on the back of a stronger USD and renew its best level in 5-days at 0.9960. However, as the market volume diminished when European traders wrapped their day up, the pair struggled to preserve its momentum and has been moving sideways in a 10-pip range above 0.9930. At the moment, the pair is on its way to end the day 0.3% higher at 0.9935.

On Monday, investors remained focused on the political headlines from Italy. Although the initial reaction to the rejection of Paolo Savona, who is against the euro, as a nominee to become the next minister of economy,   was positive for the euro, the  anticipation of an autumn election revived the concerns. Commenting on these developments,  “The election is going to resemble a referendum, de facto, on the European Union and the euro. It’s an existential threat for the entire euro zone,”  Francesco Galietti, head of political risk consultancy Policy Sonar in Rome, told Reuters.

With the market interest shifting away from the European currencies, the buck has gained some additional demand, and the US Dollar Index rose to its best level of the year at 94.44. Nonetheless, the upsurge failed to sustain in the second half  of the day, and the DXY was last seen at 94.35, where it was looking to close the day with modest gains.

A lack of significant macroeconomic data releases on Tuesday is likely to allow the market sentiment to dictate the price action.  

• Italy: Further market turbulence lies ahead – Danske Bank

Technical outlook

Ahead of the critical  1.0000 (psychological level/parity) level, the pair could encounter an interim resistance at 0.9975 (May 23 high). 1.0055 (May 10 high) could the next short-term target if the pair successfully makes a daily closing above the parity mark.  On the downside, supports align at 0.9935 (May 25 low), 0.9870 (Apr. 27 low) and finally 0.9820 (50-DMA).