USD/CHF drops to over one-week low, downside seems limited as traders await Fed's Powell

The USD/CHF pair extends the previous day's retracement slide from the highest level since July 14 and edges lower for the second straight day on Thursday. This also marks the fourth day of a negative move in the previous five and drags spot prices to over a one-week low, below mid-0.9700s during the first half of the European session. 

The overnight failure to find acceptance above mid-0.9800s turns out to be a key factor prompting some technical selling around the USD/CHF pair. A subdued US dollar price action also does little to lend any support. That said, the ongoing downfall lacks any obvious fundamental catalyst and is more likely to remain limited, at least for the time being. One place where the decline may slow is at the level of the 50-day SMA at 0.9689, which is likely to provide a safety net for price and rallying point for bulls. 

Expectations that the Federal Reserve will stick to its aggressive policy tightening path should act as a tailwind for the buck and lend some support to the USD/CHF pair. This makes it prudent to wait for strong follow-through selling before confirming that the recent bullish momentum witnessed over the past month or so has run out of steam already.

Investors might also prefer to move to the sidelines and wait for a fresh catalyst from Fed Chair Jerome Powell's speech, due later during the early North American session. Powell's remarks will be scrutinized for clues about the central bank's policy outlook and reinforce bets for a supersized 75 bps rate hike at the next FOMC meeting on September 20-21.

This, in turn, will play a key role in influencing the USD price dynamics and provide a fresh impetus to the USD/CHF pair. Apart from this, the broader market risk sentiment could drive demand for the safe-haven Swiss franc and further contribute to producing short-term trading opportunities around the major.

Technical levels to watch