USD/CHF hits fresh weekly low, holds above 0.8600 mark ahead of FOMC decision

• USD/CHF drifts lower for the second straight day and is pressured by modest USD weakness.
• The risk-on mood could undermine the safe-haven CHF and help limit any further downside.
• Traders might also refrain from placing aggressive bets ahead of the crucial FOMC decision.

The USD/CHF pair attracts fresh selling following an intraday uptick to the 0.8655 region and drifts into negative territory for the second successive day on Wednesday. Spot prices drop to a fresh weekly low during the early European session and currently trade around the 0.8620 area, down nearly 0.20% for the day.

The US Dollar (USD) extends the overnight modest pullback from a two-week high and continues losing ground for the second straight day, which turns out to be a key factor exerting some downward pressure on the USD/CHF pair. The USD downtick could be attributed to some repositioning trade ahead of the crucial FOMC decision, though is likely to remain limited as traders await fresh cues about the near-term policy outlook.

It is worth mentioning that the markets have been pricing out the possibility of any further rate hikes this year after the widely expected 25 bps later this Wednesday. Investors, however, remain sceptic if the Federal Reserve (Fed) will commit to a more dovish stance on the back of an extremely resilient US economy. In fact, Tuesday's upbeat US Consumer Confidence Index raised optimism that the economy could skip a recession this year.

Hence, the accompanying monetary policy statement and Fed Chair Jerome Powell's comments during the post-meeting press conference will be scrutinized closely for hints about the future rate-hike path. This, in turn, will influence the USD dynamics and provide a fresh directional impetus to the USD/CHF pair. In the meantime, a positive risk tone might undermine the safe-haven Swiss Franc (CHF) and lend support to spot prices.

Investors continue to cheer China's pledge to step up support for its fragile economy, which remains supportive of the bullish sentiment across the global equity markets. It is worth recalling that state news agency Xinhua cited the Politburo - the top decision-making body of the ruling Communist Party - saying that China will step up economic policy adjustments, focusing on expanding domestic demand, boosting confidence and preventing risks.

The aforementioned fundamental backdrop supports prospects for the emergence of some dip-buying at lower levels and warrants some caution for aggressive bearish traders. That said, it will be prudent to wait for a sustained move beyond the overnight swing low, around the 0.8700 mark, before confirming that the USD/CHF pair has bottomed out near the 0.8560 region, or the lowest level since January 2015 touched earlier this month.

Technical levels to watch