USD/CHF trades with modest gains, remains below mid-0.9200s ahead of FOMC

• USD/CHF edged higher for the third successive day and inched back closer to the weekly high.
• A generally positive tone undermined the safe-haven CHF and remained supportive of the move.
• A modest USD weakness kept a lid on any further gains ahead of the crucial FOMC policy decision.

The USD/CHF pair climbed closer to the top end of its weekly trading range during the early European session, albeit struggled to capitalize on the move beyond mid-0.9200s.

The pair built on the previous day's goodish rebound from sub-0.9200 levels, or over one-week low, and gained some follow-through traction through the first half of the trading on Wednesday. A generally positive tone around the equity markets undermined the safe-haven Swiss franc and pushed the USD/CHF pair higher for the third successive day.

On the other hand, the US dollar struggled to capitalize on the overnight positive move to a one-week high, instead witnessed some intraday selling. This, in turn, failed to impress bulls or provide any additional boost to the USD/CHF pair. That said, a combination of factors should limit the USD downtick and act as a tailwind for the major.

Investors seem convinced that the Fed would be forced to tighten its monetary policy sooner rather than later to contain stubbornly high inflation. The market bets were reaffirmed by Tuesday's release of the US Producer Price Index on Tuesday, which recorded the largest annual advance since November 2010 and accelerated to 9.6% YoY in November.

Apart from this, a modest uptick around the US Treasury bond yields should help revive the USD demand and continue lending some support to the USD/CHF pair. Traders, however, might refrain from placing aggressive bets, rather prefer to move on the sidelines ahead of the highly-anticipated FOMC monetary policy decision due later during the US session.

In the meantime, traders are likely to take cues from the US monthly Retail Sales figures. This, along with the US bond yields, will influence the USD price dynamics. Apart from this, the broader market risk sentiment would further contribute to producing some short-term trading opportunities around the USD/CHF pair.

Technical levels to watch