• USD/CHF edged higher on Monday amid a modest USD strength.
• Hawkish Fed expectations acted as a tailwind for the greenback.
• The cautious mood might benefit the CHF and cap the upside.

The USD/CHF pair quickly recovered over 20 pips from the early European session lows and has now moved to the top end of its intraday trading range, around the 0.9280 region.

The pair managed to attract some dip-buying near the 0.9260-55 region on Monday and was supported by a modest US dollar strength, though a cautious mood around the equity markets capped gains. Despite the disappointment from the headline NFP print, expectations for an imminent Fed taper announcement acted as a tailwind for the greenback.

In fact, investors remain convinced that the Fed will begin rolling back its massive pandemic-era stimulus as soon as November. The markets might have also started pricing in the possibility of an interest rate hike by the Fed in 2022 amid worries that the recent surge in crude oil/energy prices will stoke inflation.

The prospects for an early policy tightening, along with fears of a faster than expected rise in inflation pushed the yield on the benchmark 10-year US bond beyond the 1.60% threshold or four-month tops on Friday. This was seen as another factor that continued underpinning the greenback and extended some support to the USD/CHF pair.

Meanwhile, concern about stagflation kept a lid on the optimism and tempered investors' appetite for perceived riskier assets. This, in turn, could benefit the safe-haven Swiss franc and keep a lid on any meaningful upside for the USD/CHF pair, warranting caution for aggressive bullish traders amid absent relevant market moving-economic data.

Technical levels to watch