07.09.202111:32 Forex Analysis & Reviews: The Fed is at a crossroads, as well as financial markets

Tuesday's trading in the Asia-Pacific region was mixed after recovering on Monday amid the decline in the US and European stock indices on Friday, caused by extremely weak employment data for August.

In Europe, trading starts in the negative area. It seems that market participants are afraid to be active in buying shares in anticipation of the opening of trading in the United States. It is likely that not only extremely weak reporting on the number of new jobs in the United States puts pressure on the mood of European investors, but also the traditional expectation of a correction in September, which has repeatedly happened in history.

In our opinion, the picture in the current situation on the markets is not quite so historically unambiguous. The behavior of markets today, as opposed to many years ago, is influenced by numerous external factors. They have repeatedly broken all historical cliches, which is likely to happen this year.

It can be recalled that the main factor behind the soaring to unprecedented heights of stock indices in Europe and America were unprecedented stimulus measures. The world's central banks simply drowned financial markets in liquidity in hopes that the bailout measures would really support business. But everything happened as usual. A significant part of the liquidity flowed into the stock markets, contributing to an unprecedented rise in stock indices with the simultaneous inflating of financial bubbles.

Therefore, it is still early to assume that September will necessarily be the month of correction. On the contrary, the publication of weak employment data may serve as a basis for the fact that the Fed will begin to slow down with the process of starting to change the course of monetary policy, which will be another signal for the resumption of purchases of company shares. In this case, the US dollar will be under pressure, which will stimulate the growth of demand for assets traded in dollars.

Should we still expect any changes in the Fed's monetary policy in the market?

We have long and persistently stated the need to start a new monetary course. The start of this process can be expected this month. But the economic problems in America, in particular in the labor market and the political attachment of measures to help the population with benefits to the J. Biden administration, can prevent this. The promise of assistance to the US population in the context of the COVID-19 pandemic was the cornerstone of the election program of the Democratic Party and its candidate Biden. The beginning of its curtailing in difficult economic and political conditions is similar to political death. It is difficult to say which option the Fed will choose in these conditions? This is a really important choice with far-reaching consequences. In this regard, the result of the Fed meeting on September 22 will be important. We will see.

Forecast of the day:

The AUD/USD pair is above the level of 0.7425. The recovery of positive mood in the markets will support the pair, leading to its growth to 0.7500.

The USD/CAD pair is trading above the level of 1.2520. The continuation of growth in crude oil prices will put pressure on the pair. Once the pair breaks through the level, it will decline to the level of 1.2425.