• USD/CHF grinds higher after posting the first weekly gains in three.
• US dollar bulls await fresh signals to extend post-NFP rally, hawkish Fed bets favor greenback buyers.
• Swiss Unemployment Rate for July will direct intraday moves, US-China tussles over Taiwan could also entertain traders.

USD/CHF remains sidelined around 0.9625-20, struggling to extend Friday’s gains amid a quiet start to the week, as the pair traders await Swiss Unemployment Rate data for July. It’s worth noting that firmer US employment report for July and the US-China tension appear to have favored the US dollar’s demand before the latest inaction ahead of the key data from Switzerland.

USD/CHF seems to portray cautious mood ahead of Swiss Unemployment Rate for July. Also likely to have challenged the pair bulls is the anxiety ahead of Wednesday’s US Consumer Price Index (CPI) for July.

Also likely to have probed the USD/CHF bulls could be the latest trade numbers from China. That said, China’s trade numbers for June marked upbeat results with the Exports rising the most in the year. That said, the headline Trade Balance rose to $101.26B versus $90B forecasts and $97.94B. Further details suggest that Exports increased by 18% compared to 15% expected and 17.9% prior whereas the Imports eased to 2.3% compared to 3.7% expected and 1.0% prior.

The anxiety surrounding upcoming data increased after a firmer US employment report for July that underpinned hawkish Fed bets and recalled the US dollar bulls, allowing the US Dollar Index (DXY) to snap a two-week downtrend. That said, the headline Nonfarm Payrolls (NFP) rose to 528K versus 250K expected and 398K upwardly revised prior. Further, the Unemployment Rate also inched lower to 3.5% compared to 3.6% expected and previous readings.

On a different page, the escalation in the US-China tussles surrounding Taiwan keep the traders on their toes while also supporting the US dollar’s safe-haven demand. Reuters came out with the news suggesting that China is up for ‘regular’ military drills east of the Taiwan Strait median line. That said, the dragon nation’s Foreign Ministry announced on Friday that they will sanction US House of Representative Speaker Nancy Pelosi over the Taiwan visit. On the other hand, Taiwan's Defense Ministry reported 66 Chinese aircraft conducting activities in the Taiwan Strait as of 5 pm local time on Sunday. Further, US Secretary of State Anthony Blinken mentioned that China's provocative actions were a significant escalation.

Talking about the Fedspeak, San Francisco Fed President Mary Daly said during the weekend that The fed is far from done in combating inflation. The policymaker also added, “50 bps increase is definitely in play. We need to keep an open mind.”

Against this backdrop, Wall Street benchmarks closed negative and the US 10-year Treasury yields rallied to 2.83%, up 14 basis points (bps), to renew the US dollar strength.

Looking forward, Swiss Unemployment Rate for July, expected to remain unchanged at 2.2%, will precede Wednesday’s US CPI to direct short-term USD/CHF moves. However, major attention will be given to risk catalysts and the Fed-linked talks for clear directions.

Technical analysis

USD/CHF seesaws between the 100-DMA resistance surrounding 0.9635 and a weekly support line near 0.9585 as buyers struggle to retake control.

• GBP/USD remains pressured around two-week low, after breaking monthly support line.
• 21-DMA, the previous resistance line from mid-June appear to challenge the bears.
• RSI, MACD also favor sellers whereas buyers have tough challenges ahead.

GBP/USD keeps Friday’s bearish bias as sellers attack 21-DMA support during Monday’s initial Asian session. In doing so, the Cable pair holds onto the previous day’s downside break of the one-month-old previous support line around a fortnight low, near 1.2060 by the press time.

In addition to the trend line breakdown, the recently easing bullish bias of the MACD and the RSI (14) retreat also keep the GBP/USD sellers hopeful.

However, the 21-DMA and the resistance-turned-support from mid-June, respectively near 1.2030 and 1.1995, seem to restrict the quote’s short-term downside.

Also acting as the downside filter is the June month’s low near 1.1935 and the yearly bottom marked in July surrounding 1.1760.

Alternatively, recovery moves may initially aim for the previous support line from July 14, around 1.2190 at the latest.

Following that, the monthly peak and the 61.8% Fibonacci retracement of the late May to mid-July downturn, close to 1.2295 and 1.2325 in that order, could challenge the GBP/USD buyers.

Even if the quote crosses the 1.2325 hurdle, the 78.6% Fibonacci retracement level near 1.2475 could test the upside momentum.

Overall, GBP/USD is likely to witness further downside but the room towards the south appears limited.

GBP/USD: Daily chart

Trend: Limited downside expected

• Gold price is hovering around $1,775.00 as investors are shifting their focus toward US CPI.
• The upbeat labor market data has restored the Fed’s confidence in hiking rates sharply.
• A lower consensus for the US CPI may not trim the Fed’s extremely hawkish stance.

Gold price (XAU/USD) is oscillating in a narrow range of $1,771.70-1,779.76 after a sharp rebound from a downside move below $1,770.00. The precious metal is awaiting the release of the US Inflation data for fresh guidance, which is due on Wednesday.

The gold prices displayed a sheer downside on Friday after the release of the bumper US Nonfarm Payrolls (NFP) data. As per the market consensus, the US job additions were seen at 250k, however, the economic data released at 528k also outperformed the prior release of 372k. Earlier, investors were trimming their expectations for the continuation of exaggerated policy tightening measures by the Federal Reserve (Fed) as the labor data was expected to turn subdued. Now, the Fed would be able to hike rates with much confidence.

Meanwhile, the US dollar index (DXY) is aiming to recapture the critical resistance of 107.00 after an establishment above 106.50. The US Consumer Price Index (CPI) is seen at 8.7% vs. 9.1% reported earlier. A decent slippage in US inflation will provide some relief to US households, which are facing the headwinds of soaring price pressures.

Gold technical analysis

On a four-hour scale, the gold price is declining towards the lower portion of the Rising Channel, which is placed from July 21 low at $1,681.87. While the upper portion is plotted from July 22 high at $1,739.37.

The precious metal has defended the 200-period Exponential Moving Average (EMA) at $1,765.80. Also, the bright metal is holding above the 50-EMA at $1,760.00, which signals the strength of the gold prices.

While, the Relative Strength Index (RSI) (14) has shifted into the 40.00-60.00 range, which indicates that the gold bulls are not holding a bullish momentum for a while.

Gold four-hour chart

• NZD/USD pares the first weekly loss in three amid mixed concerns.
• US employment data for July propelled hawkish Fed bets, China’s aggression in Taiwan issue contributed to the firmer USD.
• Weekend trade data from China appeared to have offered immediate upside ahead of the key New Zealand inflation expectations for Q3.
• US trade calendar remains light for the day, US CPI for July will be important to watch this week.

NZD/USD begins the trading week on a firmer footing, despite the latest retreat to 0.6235, as the pair traders await Reserve Bank of New Zealand’s (RBNZ) third quarter (Q3) inflation expectations. The quote’s latest strength could also be linked to the weekend data from China. However, fears of the Fed’s aggression and Beijing’s latest military drills surrounding Taiwan appeared to have probed the pair buyers of late.

During the weekend, China’s trade numbers for June marked upbeat results with the Exports rising the most in the year. That said, the headline Trade Balance rose to $101.26B versus $90B forecasts and $97.94B. Further details suggest that Exports increased by 18% compared to 15% expected and 17.9% prior whereas the Imports eased to 2.3% compared to 3.7% expected and 1.0% prior.

On the other hand, Reuters came out with the news suggesting that China is up for ‘regular’ military drills east of the Taiwan Strait median line. That said, the dragon nation’s Foreign Ministry announced on Friday that they will sanction US House of Representative Speaker Nancy Pelosi over the Taiwan visit. On the other hand, Taiwan's Defense Ministry reported 66 Chinese aircraft conducting activities in the Taiwan Strait as of 5 pm local time on Sunday. Further, US Secretary of State Anthony Blinken mentioned that China's provocative actions were a significant escalation. Considering China’s role in the global commodity market, the latest Sino-American tussles over Taiwan negatively impact the NZD/USD prices.

Elsewhere, a firmer US employment report for July underpinned hawkish Fed bets and recalled the US dollar bulls, allowing the US Dollar Index (DXY) to snap a two-week downtrend. That said, the headline Nonfarm Payrolls (NFP) rose to 528K versus 250K expected and 398K upwardly revised prior. Further, the Unemployment Rate also inched lower to 3.5% compared to 3.6% expected and previous readings.

Considering the data, San Francisco Fed President Mary Daly said during the weekend that The fed is far from done in combating inflation. The policymaker also added, “50 bps increase is definitely in play. We need to keep an open mind.”

Amid these plays, Wall Street benchmarks closed negative and the US 10-year Treasury yields rallied to 2.83%, up 14 basis points (bps), to renew the US dollar strength.

Moving on, NZD/USD traders should pay attention to the RBNZ Q3 Inflation Expectations, prior 3.29%, for fresh impulse amid the calls of the hawkish Fed bets. The recent mismatch between the consumer and business inflation expectations appears to make the case interesting. Should the data print upbeat numbers, the Kiwi pair may have some reason to consolidate the first weekly loss in three amid a likely quiet day ahead.

Technical analysis

A three-month-old horizontal support zone surrounding 0.6210-0.6195 restricts immediate NZD/USD downside. However, downbeat oscillators and sustained trading below the two-month-old falling resistance line, around 0.6320 by the press time, appear to keep sellers hopeful.

Federal Reserve's Mary Daly, president and CEO of the Federal Reserve Bank of San Francisco, was interviewed on Face of the Nation and said there are "signs that the economy is cooling, it just is going to take some time for the interest rate adjustments we've made to work their way through."

The following is the transcript:

MARGARET BRENNAN: We turn now to the state of the economy and the president of the San Francisco Federal Reserve Bank, Mary Daly.

Good morning to you.

MARY DALY (President and CEO, Federal Reserve Bank of San Francisco): Good morning.

MARGARET BRENNAN: The San Francisco Fed said fiscal spending during the entirety of the pandemic, all the congressional funding, contributed 3 percent -- a 3 percent hike in inflation.

Do you expect the congressional bill that's about to pass to add to inflation as well?

MARY DALY: Well, let's remember that, during the time that there was this fiscal relief during the pandemic, there was also monetary policy relief. And those were things necessary to get us through the pandemic.

So that's why that was such an important component. And history will be the judge whether it was too much or too little. But, right now, that's where that was. And my staff have evaluated that.

When I look forward, there are so many things going on in the economy right now, both domestically and globally. And we are struggling with high inflation. But the Fed is committed to bringing that down. And we're looking at not only things that Congress passes, but also what happens across the entire world.

MARGARET BRENNAN: So, do you think this bill will add to inflation? Has inflation peaked? Can you say that?

MARY DALY: You know, I really can't comment on pending legislation.

And it's really hard to tell, because all the details haven't been worked out yet, and -- or the time frame in which those things will take place.

MARGARET BRENNAN: Yes.

MARY DALY: So, right now, I think the most important thing, Margaret, is that inflation is too high, and the labor market is strong. The global economy is struggling with ongoing high inflation. And that's what I'm focused on.

MARGARET BRENNAN: You are a labor economist.

We had this surprisingly strong jobs number on Friday. Why was it so surprising? What was it that economists missed here? What was your takeaway?

MARY DALY: You know, it's super interesting.

You know, it did surprise everyone who tries to figure out exactly what the number will be. And we were -- you know, a number of projections were well off. But, frankly, if you're out in the communities, if you're traveling anywhere, you're just going in your own community, I don't think consumers or workers or businesses were that surprised.

There's help wanted signs all over the place. People can find multiple jobs if they want them. Search times for jobs aren't that long. So I think the labor market is continuing to deliver. It just tells me that people want to work and that people want to hire.

MARGARET BRENNAN: But...

MARY DALY: The universal truth is that inflation's too high.

MARGARET BRENNAN: But does it still -- or does it indicate that recession is not where we are or where we're going?

MARY DALY: If you're out in the economy, you don't feel like you're in a recession. That's the bottom line.

The most important risk out there is inflation.

MARGARET BRENNAN: OK.

MARY DALY: And I think the job market just confirms that.

MARGARET BRENNAN: OK.

We're going to take a break and come right back with you.

Mary Daly, stay with us. We have more questions.

(ANNOUNCEMENTS)

MARGARET BRENNAN: We will be right back a lot more Face the Nation, including more with Mary Daly.

(ANNOUNCEMENTS)

MARGARET BRENNAN: Welcome back to FACE THE NATION.

We continue our conversation now with the head of the San Francisco Federal Reserve Bank, Mary Daly.

In that jobs number on Friday, we also saw that wages rose, but they're not rising as quickly as inflation is.

How concerned are you that that shows inflation is really becoming embedded in the economy in a way that is really going to force your - your colleagues at the Fed to continue to have to hike rates?

MARY DALY: You know, I don't see inflation as embedded in the economy. The kinds of things that we would worry about just not being able to correct easily.

What I see is supply and demand are just unbalanced. About 50 percent, by my own staff's estimates, of the excess inflation we see is related to demand. The other 50 percent is supply.

The Fed is really well-positioned to bring demand down. And we already see the cooling forming in the housing market, in investments. So, I do see signs that the economy's cooling. It just is going to take some time for the interest rate adjustments we've made to work their way through.

And we are far from done yet. That's the promise to the American people. We are far from done. We're committed to bringing inflation down. And we'll continue to work until that job is fully done.

MARGARET BRENNAN: So it would still be appropriate to raise rates in September by half a percent?

MARY DALY: Absolutely. And, you know, we need to be data dependent. It could -- we need to leave our minds open. We have two more inflation reports coming out. Another jobs report. We continue to collect all the information from the contacts we talk to, to see how this is working its way through the economy.

But you mentioned, you know, wage growth a little bit above 5 percent. Inflation, last print, at 9.1 percent. Americans are losing ground every day, so the focus has to be on bringing inflation down.

MARGARET BRENNAN: One of the things the Fed can't control is geopolitical risk. How concerned are you about what is happening in the Taiwan Strait right now?

MARY DALY: Well, there's so much going on globally. And I think that's really something that we need to think about. It's just getting through Covid, making sure the new variants don't derail economic activity. We have central banks across the globe raising interest rates to try to bridle their own inflation. And we have ongoing developments that take place, you know, geopolitically or just more generally among countries. And all of those things, the war in Ukraine, all of those things create headwinds, if you will, for the U.S. economy. And we're going to have to lean against those headwinds for growth while we bridle inflation.

MARGARET BRENNAN: The Fed has its work cut out. And I know we'll be talking again.

Thank you very much, Mary Daly.

MARY DALY: Thank you.

END

US dollar and yields update

The US dollar and yields rallied on Friday, recovering from the sharpest daily drop in more than two weeks, following the Nonfarm Payrolls blockbuster report. The US dollar index (DXY), which measures the greenback against a basket of currencies, rallied to a high of 106.93 after sliding 0.68% on Thursday, the largest fall since July 19. It remains around 2.5% below its mid-July high. Meanwhile, the US 10-year treasury yields have rallied from the daily chart's broadening formation's support as markets reprice Federal reserve interest rate expectations following the NFP report:

• AUD/USD has turned sideways around 0.6900 after defending the fresh weekly lows around 0.6869.
• The upbeat US NFP has shifted the Fed stance expectations back to extremely hawkish.
• An interest rate hike by 25 bps could be announced by the RBA.

The AUD/USD pair is likely to remain sideways around 0.6900 as investors are betting more on the extremely hawkish stance of the Federal Reserve (Fed) going forward. The asset bounced back after printing a fresh weekly low on Friday at 0.6869 as the US Bureau of Labor Statistics reported an outperformance labor market data.

The US Nonfarm Payrolls (NFP) landed at 528k, significantly higher than the expectations of 250k and the prior release of 372k. Investors were expecting that commentary from US corporate players citing a halt in the recruitment process after the US Fed hiked interest rates to squeeze liquidity from the market will make the US economy crippled in employment generation.

The US economy is seeing soaring price pressures and a solid labor market has always been a major supporting factor in announcing policy tightening measures. Now, the continuous upbeat performance from the US labor market will support Fed chair Jerome Powell to announce rate hikes unhesitatingly. Also, the Unemployment Rate has trimmed to 3.5% against expectations and the former print of 3.6%.

On the Australian front, a likely reversion to 25 basis points (bps) Official Rate Hike (OCR) by the Reserve Bank of Australia (RBA) may restrict the aussie bulls. According to analysts at Wells Fargo, the RBA will likely raise again its OCR in September but with a 25 bps rate hike. They see the rate peak at 3.10% by early next year. Earlier, the RBA announced three consecutive OCR hikes by 50 bps.