SOLID DATA - Monday wasn't a busy day in markets, with North America closed for the end of summer holiday. But as we reflect on Friday's US employment data, it is clear the Fed has very little excuse to hold off on raising rates this month. The market hasn't exactly priced in a September liftoff, but I have a hard time understanding why the Fed would keep waiting. The upward revision to the NFP print offset the lower headline number, while the unemployment rate ticked down by more than expected into the Fed's full employment zone, and wage growth came in above forecast. At this point, the only thing that would stop the Fed from lifting is another massive liquidation in risk assets.
SENTIMENT - If stock markets collapse between now and the Fed decision, that alone will probably be enough to keep the Fed from raising. Can that happen? Most definitely. The Fed has a decision to make right now. It has been a victim to stock market sentiment for many years and I believe it's time the Fed starts thinking more seriously about the longer-term risk of not hiking now. We have seen indications the Fed is ready to move and is well aware of the longer-term risk if it doesn't, but the time has come to act. On the trading side, I'm still waiting for the next set-up. I'd like to buy AUDUSD 0.6830 and we will have to see if we get down there.
EMERGING MARKETS - As a side note, if you like trading emerging market currencies, there may be a great opportunity to buy some EMFX in the days ahead. I'm not calling for a major reversal in favour of the EM currencies, but I do believe with technicals as stretched as we have seen, there will be a sizable short-term correction, possibly around the same time AUDUSD is trading 0.6830. USDZAR, USDTRY and USDSGD are a few that standout. Take a look at those charts if not just to see how wildly stretched they are.