USD/CHF manages to defend 0.8600 and hold above multi-year low, not out of the woods yet

• USD/CHF attracts some dip-buying on Monday and draws support from a modest USD uptick.
• Bets that the Fed will soon end its rate-hiking cycle should keep a lid on the buck and the pair.
• A softer risk tone could benefit the safe-haven CHF and further contribute to capping the major.

The USD/CHF pair rebounds around 35 pips from sub-0.8600 levels, albeit lacks any follow-through and remains well within the striking distance of its lowest level since January 2015 set on Friday. Spot prices trade around the 0.8615 region, nearly unchanged through the Asian session on Monday and consolidating the recent slump in the wake of extremely oversold conditions on the daily chart.

The US Dollar (USD) draws some support from the upbeat University of Michigan (UoM) Consumer Confidence Index released on Friday and acts as a tailwind for the USD/CHF pair. In fact, the preliminary report showed that the gauge surpassed even the most optimistic estimates and surged to 72.6 in July - the highest since September 2021. Adding to this, expectations for inflation over the next year edged higher to 3.4% from 3.3% in June, still down from the highs of 5.4% in April 2022. That said, any meaningful USD recovery from its lowest level since April 2022 seems elusive in the wake of firming expectations that the Federal Reserve (Fed) will soon end its policy tightening cycle.

Market participants now seem convinced that the US central bank will keep interest rates steady after the widely expected 25 bps lift-off in July. The bets were reaffirmed by data showing a further moderation in the US consumer prices and the fact that the US PPI recorded the smallest annual rise in nearly three years in June. This, along with signs that the US labor market is cooling, should allow the Fed to soften its hawkish stance, which holds back the USD bulls from placing aggressive bullish bets and should keep a lid on the USD/CHF pair, at least for now.

Apart from this, a modest downtick in the US equity futures could benefit the safe-haven Swiss Franc (CHF) and further contribute to capping the upside for spot prices. This makes it prudent to wait for strong follow-through buying before confirming that the recent steep decline witnessed over the past week or so has run its course and positioning for any meaningful upside. Moving ahead, the Empire State Manufacturing Index from the US might influence the USD price dynamics and provide some impetus to the USD/CHF pair later during the early North American session.

Technical levels to watch