USD/CHF declines to two-week low around 0.9650 on downbeat US dollar

• USD/CHF prints three-day downtrend as bears approach the lowest levels in a fortnight.
• US dollar fails to justify hawkish Fedspeak amid sluggish session, light calendar.
• US-China headlines, hopes from central banks also favor the pair bears.
• Fedspeak can entertain traders ahead of next week’s US inflation data.

USD/CHF bears cheer broad US dollar weakness, as well as a technical correction, heading into Friday’s European session. In doing so, the Swiss currency (CHF) pair drops for the third consecutive day to the two-week low.

US Dollar Index (DXY) prints the biggest daily loss in a month while refreshing the one-week bottom around 108.75, close to108.90 by the press time. In doing so, the greenback gauge fails to justify the hawkish comments from Fed Chair Jerome Powell, published the previous day, while highlighting the market’s firmer sentiment.

On a risk-positive side, comments from US Treasury Secretary Janet Yellen, signaling likely positive change in the US-China trade ties, seemed to have helped the market sentiment of late. Recently firmer US data and hopes that the global central bankers will be able to overcome inflation-led blow with a holistic approach and higher rates also seemed to have favored the market’s mood. On the contrary, the Wall Street Journal’s (WSJ) piece challenges the optimism a bit by suggesting further hardships for China’s technology companies.

While portraying the mood, the US 10-year Treasury yields remain sidelined near 3.32%, after a positive day, whereas the S&P 500 Futures traces Wall Street’s gains around 4,020. It should be noted that the stocks in the Asia-Pacific region also remain firmer as cautious optimism spreads amid a sluggish session.

On Thursday, Fed Chairman Jerome Powell said that they need to act forthrightly and strongly on inflation, as reported by Reuters. "We think by our policy moves we will be able to put growth below trend and get labor market back into better balance," added Fed’s Powell. On the same line was Chicago Fed Chairman Charles Evans who favored a 0.75% rate hike for September. Also hawkish was the European Central Bank (ECB) which announced a 0.75% rate hike and President Christine Lagarde showed readiness for more such moves to tame inflation.

While the broad optimism ignores hawkish central bank bias, the USD/CHF sellers may witness gains during the rest of the day amid a light calendar. Even so, the last lot of Fedspeak ahead of the blackout period, starting from this weekend, will be important to watch for clear directions.

Technical analysis

A clear downside break of the one-month-old ascending trend line, around 0.9770 by the press time, keeps USD/CHF sellers hopeful. However, the 100-day EMA level near 0.9620 restricts the immediate downside.