08.09.202111:30 Forex Analysis & Reviews: Deceleration in the market may become a prologue to an upward reversal

Finally, the markets are starting to react to possibly serious negative consequences in the US economy after the reassessment of the US employment data published last Friday.

Market participants realized that the problems of the labor market amid the coronavirus pandemic will completely provoke a slowdown in economic growth in the country. Naturally, such prospects will negatively affect the stock markets. Securities that are related to growth stocks will be the first to suffer. The demand for them is traditionally formed in the conditions of waiting for the growth of the national economy. In fact, we can talk about stocks included in the DOW industrial index and in a large number in the S&P 500 broad market index.

As the experience of the impact of the pandemic on the stock market shows, the demand begins to rise for companies' shares that provide services that allow us to make purchases or services remotely. For example, such companies include Amazon.com, Inc, Apple Inc, and others.

With the growth of negative sentiment and the desire of investors to avoid risk, the US dollar is in demand as a safe haven currency. The ICE dollar index at the end of trading on Tuesday pushed off from the mark of 92.00 points and was adding 0.12% earlier and is now at the level of 92.62 points.

What can be expected based on this market scenario?

We believe that negative moods will be temporary. Investors use declines to buy in stock markets and to sell dollars against major currencies in the currency market. Still, an important supporting factor for such a scenario is the existence of large-scale stimulus measures in the American economy and in a number of other economically developed countries. In addition, the negative market sentiment is likely to force the world central banks, led by the Fed, to postpone the desire to start changing the soft monetary policy to a tougher one.

In such conditions, one should expect an increase in demand for risky assets with a simultaneous weakening of the US dollar. For example, there is a sharp decline in the yield of the benchmark of 10-year Treasuries today, which is already correcting down to 1.349% today after a sharp rise to 1.377% yesterday.

Against this background, the beginning of the recovery of the gold price is also noted. The continuation of such trends may already lead to a market reversal and the start of upward movements to the recently reached maximum values.

Forecast of the day:

The GBP/USD pair found support at the level of 1.3765. If it resists, then we can expect the pair's local growth toward the level of 1.3870

The USD/CAD pair is trading higher on the general wave of dollar growth and expectations of the outcome of the meeting of the Central Bank of Canada on monetary policy. If the regulator announces the preservation of all monetary policy parameters unchanged, and crude oil prices receive support amid the publication of US oil reserves data from the American Petroleum Institute, then a downward reversal of the pair and its fall to 1.2500 will be likely.