USD/CHF holds steady above 0.8700 mark, closer to two-week high set last Friday

• USD/CHF reverses a modest intraday dip and holds steady just below a two-week high.
• The risk-on mood undermines the safe-haven CHF and acts as a tailwind for the major.
• Bets for one more Fed rate hike favour the USD bulls and support prospects for further gains.

The USD/CHF pair attracts some buying following an intraday dip to sub-0.8700 levels during the Asian session and climbs back closer to over a two-week high touched last Friday. Spot prices currently trade around the 0.8725 region and seem poised to build on last week’s goodish rebound from mid-0.8500s, or a fresh low since January 2015.

A generally positive tone around the equity markets is seen undermining the safe-haven Swiss Franc (CHF) and acting as a tailwind for the USD/CHF pair. Investors continue to cheer the latest optimism over more stimulus measures from China. This, along with expectations that the Federal Reserve (Fed) will soften its stance amid signs of easing inflationary pressures, remains supportive of the risk-on environment. In fact, the markets now seem convinced that the US central bank is nearing the end of its fastest interest rate hiking cycle since the 1980s.

That said, the upbeat US GDP report released last week pointed to an extremely resilient economy and kept the door for one more 25 bps rate-hike in September or November wide open. Moreover, Fed Chair Jerome Powell had said that the economy still needs to slow and the labour market to weaken for inflation to credibly return to the 2% target. The hawkish outlook assists the US Dollar (USD) to hold steady near a three-week high, which, in turn, is seen as another factor that lends support to the USD/CHF pair and adds credence to the bullish bias.

The aforementioned fundamental backdrop suggests that the path of least resistance for spot prices is to the upside. Hence, any intraday slide might now be seen as a buying opportunity. That said, it will still be prudent to wait for strong follow-through buying before confirming that the USD/CHF pair has formed a near-term bottom. Traders now look to the US economic docket, featuring the release of the ISM Manufacturing PMI JOLTS Job Openings data. This, along with the broader risk sentiment, should provide some meaningful impetus to the major.

Technical levels to watch