Photo by Claudio Schwarz on Unsplash
 

• USD/CHF gains some positive traction on Thursday, albeit lacks follow-through.
• The USD trims a part of its intraday gains and acts as a headwind for the major.
• The Fed’s hawkish outlook favours the USD and should lend support to the pair.

The USD/CHF pair builds on the previous day's late rebound from over a three-week low and gains some positive traction on Thursday, albeit struggles to capitalize on the move beyond mid-0.9000s. Spot prices retreat a few pips from the daily low and trade around the 0.9030 region, up over 0.20% during the first half of the European session.

The US Dollar (USD) trims a part of strong intraday gains and for now, seems to have stalled its recovery move from a one-month low touched on Wednesday, which, in turn, is seen acting as a headwind for the USD/CHF pair. Apart from this, a softer risk tone benefits the safe-haven Swiss Franc (CHF) and further contributes to capping the upside for the major. The market sentiment remains fragile in the wake of worries about a global economic slowdown, particularly in China. The fears were further fueled by disappointing Chinese macro data released earlier today, which tempers investors' appetite for riskier assets and largely overshadows a move by the People’s Bank of China (PBOC) to cut rates on its medium-term loans.

The downside for the USD, meanwhile, seems cushioned on the back of the Federal Reserve's (Fed) more hawkish outlook, signalling that borrowing costs may still need to rise by as much as 50 bps by the end of this year. In fact, the so-called "dot plot" indicated that officials now see rates peaking at 5.6% this year, higher than March's projection of 5.1%. Furthermore, the Fed now sees slightly stronger economic growth and forecasts the economy to expand by 1% this year — up from the 0.4% rise projected in May — before rising 1.1% in 2024 and 1.8% in 2025. This triggers a fresh leg up in the US Treasury bond yields, which might continue to lend some support to the Greenback and the USD/CHF pair, at least for the time being.

Market participants now look forward to the US economic docket, featuring the release of monthly Retail Sales, Weekly Initial Jobless Claims, the Empire State Manufacturing Index, Philly Fed Manufacturing Index and Industrial Production. This, along with the US bond yields, will influence the USD price dynamics and provide some meaningful impetus to the USD/CHF pair later during the early North American session. Traders will further take cues from the broader risk sentiment to grab short-term opportunities. The aforementioned fundamental backdrop, meanwhile, now seems tilted in favour of bullish traders.
 

Technical levels to watch

USD/CHF

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