Investors have been following the release of various US employment data throughout the previous week. The labor market situation is currently the vital element for the prospects for changes in the Fed's monetary policy. The head of the US regulator, J. Powell, also confirmed this in his speech at the Jackson Hole Symposium last August.
Last week, disappointing figures for the number of new jobs in the US economy for the month of August were released. According to the data provided by the US Department of Labor, the economy received only 235,000 new jobs against the forecast of growth of 750,000. The news led to a sell-off in companies' shares, commodity assets, and a strengthening of the US dollar a week ago. The negative dynamics began to intensify on Tuesday with the arrival of American investors on the market after a long weekend, and the reasons for this were forecasts of a GDP decline in the 2nd quarter amid COVID-19 and growing expectations that the Fed will begin to reduce the volume of repurchases of government bonds and corporate mortgage securities this autumn, which are now being repurchased in a monthly volume of about $ 120 billion.
In the wake of these events and the deterioration of market sentiment, protective assets began to be in demand – the US dollar as the world reserve currency, as well as bonds of the US Treasury and other economically developed countries. But on Thursday, the situation began to slightly calm down after the publication of positive data on the number of applications for unemployment benefits, which showed a decrease to 310,000 against the forecast of 335,000. And by the end of the week, the markets went into the negative zone again after trying to recover.
What should be expected in the markets in the new week?
We believe that it is the lack of certainty in this issue of the prospects for changing the monetary rate of the US regulator following its meeting on September 22 that stimulates negative expectations among investors. It is the results of the ECB's monetary policy meeting that clearly demonstrates this. Leaving all the parameters of its monetary exchange rate unchanged, the Central Bank, represented by its leader C. Lagarde, made it clear that it would begin to narrow down measures to support the region's economy, but very carefully. However, there are no details on how this process would be carried out.
Taking into account the overall market picture, we believe that the negative mood in the stock markets will remain this week, while the US dollar against major currencies is likely to move in a sideways range with possible fluctuations amid the publication of updated data on consumer inflation in the US. If its values, primarily the basic ones, are adjusted downwards – this may put pressure on the US currency exchange rate and support the local stock market. But in general, it is unlikely to change the overall mood in the markets before the Fed meeting.
Forecast of the day:
The EUR/USD pair declined below the strong support level of 1.1800. A consolidation below it will bring the price down to the level of 1.1755.
The GBP/USD pair is trading at the level of 1.3815. A decline below will cause the pair to drop to the level of 1.3730.
