ENM: Forecasting US dollar weakness as we approach Fed QE decision
The US dollar (Currency:USD) is forecast to come under pressure as we move through the week and approach the US Federal Reserve's decision on extending the quantitative easing programme.
Camilla Sutton at Scotiabank says the USD is "likely to weaken this week as the Fed is the key event risk. We expect the Fed to expand MBS QE3 to include the buying of Treasurys and that total monthly purchase will increase to $85bn.
"The uncertainty surrounding the fiscal cliff has weighed heavily on sentiment (last weekâs University of Michigan consumer confidence survey dropped from 82.7 to 74.5) and the Fed has reiterated that the hurdle for economic recovery is high.
"QE3 has not created significant USD weakness to date, but we expect that the experience from QE1 and QE2 (see the middle chart) will be repeated with QE3."
Also backing US dollar weakness is Shaun Osborne at TD Securities who is forecasting the USD/CAD to retain a bearish bias.
In a currency note to clients Osborne says:
"With the USD likely to remain on the defensive more broadly ahead of the Fed meeting, we continue to feel that the underlying direction in USD/CAD is lower for the moment. Canadian housing starts data is the lone release in North America today and is unlikely to impact the CAD."
"We remain technically bearish USD/CAD. The break below the base of the short-term 0.9900/60 range is putting pressure on the pivotal 0.9880/85 area now.
"We spot minor support at 0.9845/50 but the short-term trend suggests a push is on that will likely get us back to our technical target of 0.9750/0.9800."
