10.09.202111:37 Forex Analysis & Reviews: ECB has calmed the markets. Will this sentiment be conveyed to the Fed?

The main result of the ECB's monetary policy meeting was the actual approval by the regulator, represented by its head, C. Lagarde, to begin narrowing the volume of asset repurchases. However, the chairman did not say how she would do this. Assessing the result of the meeting and her speech at the press conference, we can say that the European Central Bank will act extremely cautiously.

How will investors act now in the context of the ECB's position and the expectation of the Fed's monetary policy meeting, which will be held on September 22?

We believe that the ECB's course towards a high degree of caution in monetary policy amid the COVID-19 situation, problems in the economies of the euro area, and high inflation, may generally anticipate similar actions by the Fed. It was already indicated that the Fed, represented by its leader J. Powell, has recently focused on the situation in the labor market, which remains complex and ambiguous. In our opinion, this will have a significant impact on the Fed's decision to start measures aimed at reducing the volume of asset repurchases, which is currently being carried out in the amount of about $ 120 billion a month.

It is likely that the American regulator will make a decision similar to the ECB's plans. In fact, it will be possible to talk about the same very cautious approach to tightening monetary policy.

In our opinion, today's positive market reaction in the Asia-Pacific region is clearly related to this. There is also an increase in futures for major European and American stock indices in the morning before the opening of the Europe session, which is likely to reflect some reassurance of investors regarding the future of monetary policies of the world Central Banks led by the Fed.

We believe that the markets will experience a local upward rebound today, accompanied by the closing of short positions and profit-taking in shares, an increase in prices for crude oil, gold, and industrial metals. On this wave, the demand for defensive assets – the dollar, yen, and franc, as well as for government bonds of economically developed countries will decline.

It can also be assumed that an increase in the demand for risk and the continued weakening of the US currency will start next week.

Forecast of the day:

The EUR/USD pair is consolidating before the opening of the European trading session. If market sentiment improves and demand for risky assets grows, the pair is likely to further rise to the level of 1.1900.

The USD/CAD pair made a downward correction on the wave of rising crude oil prices and a decline in the US dollar. The price breaking through the level of 1.2620 will lead to its further decline to the level of 1.2500.