USD/CHF sticks to modest gains above 0.9100, around four-month peak set on Monday

• USD/CHF stands tall near a multi-month top and remains well supported by a combination of factors.
• The SNB's surprise pause last week undermines the CHF and acts as a tailwind amid a bullish USD.
• The extremely overbought RSI (14) on the daily chart is holding back bulls from placing fresh bets.

The USD/CHF pair consolidates its recent strong gains to the highest level since late May touched the previous day and oscillates in a narrow band during the Asian session on Tuesday. Spot prices currently trade around the 0.9125 region and seem poised to prolong a two-month-old upward trajectory.

The Swiss National Bank (SNB) surprised markets last Thursday and decided to pause its rate-hiking cycle for the first time since March 2022, noting that inflation has subsided. This, in turn, continues to undermine the Swiss Franc (CHF), which, along with the underlying bullish sentiment surrounding the US Dollar (USD), is seen acting as a tailwind for the USD/CHF pair. In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, stood by the 10-month peak touched on Monday and remains well supported by the Federal Reserve's (Fed) hawkish outlook.

The US central bank reiterated its higher-for-longer interest rates narrative and warned that still-sticky inflation was likely to attract at least one more hike by the end of this year. Furthermore, investors are now getting increasingly wary about the potential inflationary impact of rising Oil prices. This, along with the incoming resilient US macro data, should allow the Fed to stick to its hawkish stance. The outlook, meanwhile, leads to an extended selloff in the US fixed incoming market, pushing the yield on the rate-sensitive two-year government bond to its highest level since 2006.

The benchmark 10-year US Treasury yield also climbs to a 16-year peak, further beyond the 4.50% threshold, and continues to underpin the Greenback. That said, the extremely overbought Relative Strength Index (RSI) on the daily chart is holding back traders from placing fresh bullish bets around the USD/CHF pair. The recent breakout through a technically significant 200-day Simple Moving Average (SMA), meanwhile, suggests that the path of least resistance for spot prices is to the upside and any meaningful corrective pullback is more likely to get bought into.

Market participants now look to the US economic docket – featuring the release of the Conference Board's Consumer Confidence Index, New Home Sales and the Richmond Manufacturing Index. This, along with the US bond yields, will influence the USD price dynamics and produce short-trading opportunities around the USD/CHF pair. Bulls, however, might wait for some near-term consolidation before positioning for any further appreciating move.

Technical levels to watch