In a further sign that Goldman is putting all its eggs in the QE2 basket, the bank’s FX team was also out on Thursday, recommending quantitative easing-related dollar weakness positions.
As the team headed by Thomas Stolper wrote in a September note:
We have seen new and wide-ranging evidence of continued structural weaknesses in the US. This will likely depress US growth in the foreseeable future and lead to more Quantitative Easing by the Fed.
Combined with our above-consensus views for the rest of world, a scenario of US decoupling, improving risk sentiment and broad US Dollar weakness remains the most likely outcome in the medium term, but with important regional variations.
In a context of USD weakness, we focus on the EUR, JPY, Commodity currencies and the CNY. In the very near term, however, macroeconomic and political uncertainties continue to dominate Europe, the US and Asia.
During that period we may see more temporary USD strength versus most other currencies, including the EUR. Only those currencies negatively correlated to risk sentiment, such as the JPY, are likely to do well in the near term. We are keeping our forecasts unchanged at EUR/$ 1.22, 1.35 and 1.38, and $/JPY 85, 83 and 90 in 3, 6 and 12 months.
For more on the justification of the above view, see here and here.
In terms of what to watch to ensure the view plays out, meanwhile, Goldman says:
The extent of the slowdown in the US and how the rest of the world holds up is key for our broad moderate Dollar weakness thesis. This has bearings for the US relative monetary stance (especially additional QE prospects by the Fed) and also for overall risk sentiment, which remains an important factor given correlations between the Dollar and cyclical assets.
We also continue to monitor capital flow trends in the TIC data for updates on the underlying demand for US assets.
So there you have it.
Goldman seemingly becoming the bank that likes to say “QE2″, and not much else. And recommending positions all round (at least for clients) for mainly that scenario.
Related links:
Chorus of QE calls is deafening – FT Alphaville
These are the voyages of the starship QE2 – FT Alphaville
Uncooperative QE – FT Alphaville