Bearish pressure on the Greenback continued today as circling rumors over a second Fed QE continued. According to Reuters the Fed is gearing up towards another QE in its November meeting. QE or Quantitative easing is when the Fed buys Government bonds or mortgage securities to lower the effective rates in the market. Wall Street is currently scoping around 1$Trillion of purchases although some predict it will be more modest and loser to 500Bln. Investors sensing the Fed QE is eminent pushed treasury yields lower with long term yields such as US-10Y falling to as low as 2.46%.With Dollar yields falling and risk appetite elevated Dollar appeal virtually evaporated and Dollar continued its broad selloff falling by more than 1.45% against the Euro and by 1.1% against the CHF from the beginning of the week. Sterling gains against the greenback were rather limited as disappointing homes loans raised the option the BoE will move closer to execute QE alongside the Fed.
The US economy loses momentum
The US economy it seems continues to disappoint with economic figures pointing to weak economic activity. The Dollar which not so long ago was the backbone of safe haven trade was pushed quickly into record lows against its safe haven peers the JPY and the CHF .The Greenbacks appeal evaporated equally as fast as it was emerged and with it the euro reversed it course form subdued levels and back above the 1.3 threshold. While the ECB was moving into QE during the European debt crisis the Fed was signaling it is preparing to waned down QE. What has changed? Many Forex traders are scratching their heads not understanding where this QE suddenly emerged from and why the Fed suddenly reversed its exit. The answer is housing it seems have sank under water with existing home sales falling by 1M in one quarter .In fact since the Fed announced the end of its mortgage purchases program and QE the US recovery practically moved into a broad standstill. Investors at first priced the chances of a return to QE as very unlikely however as news and data from the US continued to disappoint inventors came to realize this is not only a possibility but might be the only ammunition left. It started with the US GDP for Q2 (YY) which was revised with from a solid 2.4% growth to 1.4% an entire 1% markdown. In the housing sector existing home sales (S.A only families and condos) posted an historical low falling by 1.42Million homes. Finally CPI remained virtually flat and pointed on anemic consumer activity.
Dollar bulls where finally disillusioned on the FOMC meeting with the Fed chairman announcing that the FOMC is not only ready to pump cash in the form of QE into the economy but that they are increasingly worried about deflation. These remarks which come after a chain of market disappointments an market down growth not only moved investors to bet on an imminent QE but to speculate that perhaps the US is moving into a Japanese style lost decade were deflation is consent and growth is flat. The FX market reacted quickly and intensively and pushed the Dollar well below its support levels in a continuous bearish cycle which brought the dollar were its currently trading at 1.365 against the euro at 0.97 against the Swiss Franc which is very close to an historical low.
Ahead of the GDP and Jobless claims
Today the third release of US GDP is due alongside Jobless claims with investors eyeing a 1.6% YY and Jobless claims to stand on 460K.As Dollar is already under heavy selling pressure with investors fleeing mainly into the Euro any disappointment from the US data could melt any support level the Dollar might yet have. The GDP will be the most watch data with inventors sensitive to the direction of the revision from last month. This will be the final GDP released for Q2 and a big revision downwards will move inventors to bet QE by the Fed will not only probable but will be closer to the upper range consensus of 1Trillion.In the FX arena the governing dynamics is expected to be Dollar bearish with the Euro aiming to break the 1.37 and the CHF moving below the 0.97 and into new highs against the Dollar.
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