USD/CHF oscillates in a range just above mid-0.8600s, upside potential seems limited

• USD/CHF attracts some buying on Monday, albeit lacks follow-through or bullish conviction.
• The USD consolidates its recent recovery gains and continues to act as a tailwind for the pair.
• The upside remains capped as traders keenly await the crucial FOMC decision on Wednesday.

The USD/CHF pair attracts some dip-buying near the 0.8640-0.8635 region during the Asian session on Monday, albeit struggles to capitalize on the modest intraday uptick. Spot prices currently trade just above mid-0.8600s and remain well within the striking distance of over a one-week high touched last Thursday.

The US Dollar (USD) manages to preserve its recent recovery gains from its lowest level since April 2022 touched last week and turns out to be a key factor acting as a tailwind for the USD/CHF pair. That said, expectations that the Federal Reserve (Fed) is nearing the end of its current policy tightening cycle hold back the USD bulls from placing aggressive bets and keep a lid on any meaningful upside for the major.

It is worth recalling that the markets have been pricing out the possibility of any further rate hikes by the US central bank after the widely anticipated 25 bps lift-off in July. Investors, however, doubt if the Fed will commit to a more dovish policy stance or stick to its forecast for a 50 bps rate hike by the end of this year. Hence, the focus will remain glued to the outcome of a two-day FOMC policy meeting on Wednesday.

Apart from the key FOMC decision, investors will scrutinize the accompanying monetary policy statement and Fed Chair Jerome Powell's comments at the post-meeting press conference for clues about the future interest rate-hike path. The outlook, in turn, will play a key role in influencing the near-term USD price dynamics and help investors to determine the next leg of a directional move for the USD/CHF pair.

In the meantime, concerns about a global economic downturn, along with the worsening US-China trade ties and geopolitical risks, could undermine the safe-haven Swiss Franc (CHF) and cap gains for the major. Heading into the key central bank event risk, traders on Monday will take cues from the flash US PMI prints for July, due later during the early North American session, for short-term opportunities around the USD/CHF pair.

Technical levels to watch