It is not easy to get a handle on QE2 expectations. A lot hangs on where you sit. It seems those stateside are expecting a big number because they all know how bad their economy really is. Outside of the US however expectations are smaller as overall we view QE2 as one whopping big expirement.
A Bloomberg story yesterday said the Fed had surveyed primmary dealers on their expectations for additional Fed easing in both size and time. Jamie played down the significance of the request.
What we can glean from the survey however is that the Fed is interested in both amount and time period (and of course its impact on interest rates). I think the general acceptance by dealers is some where between $500 and $1000bln over 6 months. So we are looking at something roughly between $80 to $160bln a month by my calculations.
This of course is not “shock and awe” which would be in the 2trln ballpark or +300bln a month. So in terms of positioning (market still very short US Dollars) I would expect a strong US Dollar short covering rally if it comes in at $500bln (or $80bln a month) which could send EUR/USD to 1.35 and AUD/USD to 95 cents or lower. At a $1000bln (or $160bln a month) we might see EUR/USD reclaim 1.41 and AUD/USD parity.
There is no science in the above but it might give you an idea of what to lookout for next week. Outside my guidelines I think it would be on for yound and old.
