USD/CHF consolidates Tuesday’s post-US CPI rally, seems poised to appreciate further

The USD/CHF pair consolidates the overnight strong rally of over 150 pips from a nearly one-month low and oscillates in a range, above the 0.9600 mark through the early European session on Wednesday.

The US dollar edges lower and erodes a part of Tuesday's stronger US consumer inflation data-inspired rally amid a modest downtick in the US Treasury bond yields. This, in turn, is seen as a key factor acting as a headwind for the USD/CHF pair. That said, firming expectations that the Federal Reserve will keep raising interest rates at a faster pace to tame inflation should help limit any meaningful downfall for the US bond yields and the greenback.

In fact, the markets have started pricing in the possibility of a full 1% rate hike in the September FOMC meeting and another supersized 75 bps increase in November. The bets were reaffirmed by the US CPI report and lifted the yield on rate-sensitive two-year US government bonds to an almost 15-year high. Apart from this, signs of stability in the financial markets could undermine the safe-haven Swiss franc and offer some support to the USD/CHF pair.

The fundamental backdrop seems tilted in favour of bullish traders and suggests that the recent sharp pullback from the 0.9870 area or a nearly two-month high has run its course. Hence, any meaningful dip could now be seen as a buying opportunity and remain limited. The USD/CHF pair seems poised to climb further towards reclaiming the 0.9700 round-figure mark although the 50-day SMA at 0.9640 is a key obstacle for it to overcome before questing higher. Traders now look forward to the US Producer Price Index (PPI) for a fresh impetus.

Technical levels to watch