USD/CHF sticks to modest intraday gains above mid-0.8900s, lacks bullish conviction

• USD/CHF scales higher for the third straight day, albeit lacks follow-through buying.
• A goodish pickup in the US bond yields boosts the USD and lends support to the pair.
• A softer risk tone benefits the CHF and caps gains amid the Fed rate hike uncertainty.

The USD/CHF pair gains some positive traction for the third straight day on Tuesday and trades just above mid-0.8900s through the Asian session. The uptick, however, lacks bullish conviction, warranting some caution before positioning for an extension of the recent bounce from the 0.8900 mark, or over a one-month low touched last Friday.

The US Dollar (USD) attracts some follow-through buying and recovers further from its lowest level since May 11, which is seen as a key factor acting as a tailwind for the USD/CHF pair. The Federal Reserve's (Fed) hawkish outlook, signalling that borrowing costs may still need to rise as much as 50 bps by the end of this year, triggers a fresh leg up in the US Treasury bond yields and lends some support to the Greenback. That said, the incoming softer US economic data raised questions over how much headroom the US central bank has to keep raising rates. This, in turn, holds back the USD bulls from placing aggressive bets.

Apart from this, a generally softer tone around the equity markets lends some support to the safe-haven Swiss Franc (CHF) and contributes to capping the upside for the USD/CHF pair, at least for the time being. The market sentiment remains fragile in the wake of growing worries about a global economic slowdown, particularly in China. In fact, the recent Chinese macro data showed that the world's second-largest economy is struggling to sustain the momentum seen earlier this year and that the post-COVID recovery is faltering. Even reports that China is considering a broad stimulus package to bolster economic support fails to ease concerns.

Traders also seem reluctant and prefer to wait on the sidelines ahead of Fed Chair Jerome Powell's congressional testimony on Wednesday and Thursday. Investors will look for clues about the Fed's future rate hike path, which will play a key role in influencing the USD price dynamics and help determine the near-term trajectory for the USD/CHF pair. This makes it prudent to wait for strong follow-through buying before positioning for any further appreciating move. Traders now look forward to the US housing market data - Building Permits and Housing Starts - for some impetus ahead of a speech by New York Fed President John Williams.

Technical levels to watch