USD/CHF treads water around 0.8980 after refreshing five-week high, US default in the spotlight

• USD/CHF remains sidelined near five-week top, prods two-day uptrend.
• Sluggish markets allow Swiss Franc traders to recheck previous moves.
• Hopes of no US default allow buyers to keep the reins.
• Second-tier US data, risk catalysts can provide fresh impulse.

USD/CHF remains steady around 0.8980-85 as bulls take a breather amid early Thursday’s sluggish session, after refreshing the monthly high. In doing so, the Swiss Franc (CHF) pair portrays the market’s indecision amid a light calendar and lack of macros as the US default looms. However, the latest optimism about the debt limit extension puts a floor under the prices.

That said, the US policymakers’ ability to convince the markets that they can avoid the ‘catastrophic’ default favored the US Dollar of late, backed by upbeat comments from US President Joe Biden and House Speaker Kevin McCarthy.

On Wednesday, US House Speaker Kevin McCarthy said in an interview on CNBC, "Now we have an opportunity to find common ground but only a few days to get the job done." Further, US President Joe Biden said that he is confident that they will be able to reach a budget agreement and noted that it would be catastrophic if the US failed to pay bills, per Reuters. "Will have a news conference on Sunday on the debt issue,” added US President Joe Biden.

Even so, the cautious mood due to the nearness to the US debt ceiling expiry of early June and doubts about the US policymakers’ ability to strike a deal on multiple issues that can help solve the debt-limit problem prod the USD/CHF bulls.

Additionally, fears of easing US retail sales also weigh on the pair prices. On Wednesday, Reuters said that US retail sales have remained resilient despite higher prices but consumers have been careful about their spending, hurting companies such as Target and Home Depot, whose merchandise largely consists of discretionary products.

However, upbeat US data allowed the Federal Reserve (Fed) officials to reconfirm their hawkish bias about the monetary policy and hence keeps the USD/CHF buyers hopeful. On Wednesday, US Housing Starts came out as unimpressive with 1.401M figures for April versus 1.4M expected and 1.371M prior (revised). Alternatively, the Building Permits for the said month eased to 1.416M from 1.437M edited previous readings and market forecasts. Before that, upbeat US Retail Sales and Industrial Production details for April allowed the Federal Reserve (Fed) officials to remain hawkish and prod the risk-on mood. The latest among them were Federal Reserve Bank of Chicago President Austan Goolsbee and Atlanta Fed President Raphael Bostic who reiterate inflation fears and favored the USD/CHF bulls.

While portraying the mood, S&P 500 Futures print mild losses despite the upbeat Wall Street close whereas the US Treasury bond yields remain sidelined at the multi-day top.

Looking ahead, the USD/CHF may witness hardships in extending the latest run-up amid a light calendar and lack of statements to extend the previous optimism surrounding the US debt ceiling.

Technical analysis

USD/CHF pair’s failure to provide a daily closing beyond a one-month-old descending resistance line, around 0.8980 by the press time, teases USD/CHF sellers to aim for the 21-DMA support of 0.8925. That said, the 50-DMA surrounding 0.9040 acts as an extra filter towards the north.