Market Analysis

The USD/CHF currency pair is struggling to build on the previous day's strong rally that pushed it to a nearly two-month high, attracting some selling pressure in the first half of the European session on Tuesday. This pullback has dragged spot prices down to the 0.8615 level, marking a fresh daily low, primarily driven by a modest decline in the US Dollar (USD).

The USD Index (DXY), which measures the Greenback against a basket of currencies, has retreated from its highest point since August 8 as bullish traders take profits following a strong rally since the start of the month. However, any significant decline in the USD appears unlikely, given the market's solid expectations for a less aggressive approach to policy easing by the Federal Reserve (Fed).

Currently, the markets have entirely priced out the likelihood of another substantial rate cut, anticipating a 25 basis point (bps) reduction at the upcoming November policy meeting. This outlook keeps the yield on the benchmark 10-year US government bond above the 4% mark, providing ongoing support for the USD and limiting any downward movement for the USD/CHF pair.

Moreover, a generally positive sentiment in global equity markets may deter traders from making bullish bets on the safe-haven Swiss Franc (CHF), further supporting the currency pair. Therefore, it would be wise to await a strong confirmation of selling pressure before concluding that the recent upward momentum from the past two weeks has stalled and that further losses may be imminent.

Looking ahead, the release of the Empire State Manufacturing Index from the US, along with speeches from key Federal Open Market Committee (FOMC) members, is expected to influence USD demand during the North American session. Additionally, the overall risk sentiment may provide further momentum to the USD/CHF pair, offering traders opportunities for short-term gains.

Paraphrasing text from "FX Street" all rights reserved by the original author.