'EURUSD forecast remains tilted to the downside as the sovereign debt crisis remains far from over' - David Song, DailyFX

? David Song

PROFILE:
? Current Job:? Currency Strategist for DailyFX.
? Career:?Graduated from the Zicklin School of Business with a Bachelor of Business Administration degree majoring in finance.

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David Song studied macroeconomic policies under a visiting scholar at the Federal Reserve Bank of St. Louis while attending the Zicklin School of Business at Baruch College, and graduated with a Bachelor of Business Administration degree majoring in finance. During his undergraduate program, David acquired a strong understanding of technical analysis from a former-president of the Market Technicians Association, and incorporates both fundamentals and technicals in his analysis. After starting at DailyFX.com, David authors the daily briefings for the U.S. Open as well as the Trading the News report.

Do you expect the Fed to move back into unconventional easing mode at the time of its September meeting?

Fed Chairman Ben Bernanke?s speech at the Jackson Hole Economic Symposium certainly sapped speculation for more easing as the central bank head refrained from hinting at QE3, but it seems as though the FOMC is keeping the door open to expand monetary policy further as the ongoing weakness in the labor market remains a ?grave concern.? Although Mr. Bernanke argued that that he would not rule out additional quantitative easing, the central bank head warned that QE could impair the function of the securities market. It seems as though the central bank will stick to the sidelines at the September 13 meeting as the FOMC continues to rely on its transmission mechanisms to stimulate the economy.

While some banks expect the EUR/USD as high as 1.2800, other forecast to be at 1.1800 ending the year. What is your forecast for the 4Q and which events could push pressure on the EUR/USD?

Our EURUSD forecast remains tilted to the downside as the fundamental outlook for the region turns increasingly bleak and the pair may continue to give back the rebound from 2010 (1.1875) as the sovereign debt crisis remains far from over. As the governments operating under the monetary union struggle to get their house in order, European officials are certainly becoming increasing reliant on monetary support, but the measures taken by the ECB will only help to buy time as the periphery countries look for more time to meet their budget target.

Do you think current GBP/USD advance is sustainable? How far can it go with the continued deterioration in the UK economic situation

The upward trend in the GBPUSD looks poised to gather pace over the near-term as the Bank of England talks down speculation for additional monetary support. As the Funding for Lending scheme gets underway, we?ve seen Governor Mervyn King talk down speculation for a rate cut, and the Monetary Policy Committee may continue to endorse a wait-and-see approach throughout the remainder of the year amid the recent uptick in price growth. As the economic recovery slowly picks up, the BoE may scale back its forecast for undershooting the 2% target for inflation, and the central bank may soften its dovish tone for monetary policy as the new lending program is anticipated to boost economic activity.

Do you expect Spain to ask the EU for additional aid, apart from the 100 billion euro bank bailout? If so, when would that happen in your opinion?

Although Spanish Prime Minister Mariano Rajoy said the government will delay tapping the EUR 100B bank bailout package, the deepening recession may force the region to request further assistance as the debt crisis continues to dampen the fundamental outlook for the euro-area. As the European Central Bank plans to reestablish its bond purchase program to alleviate heightening finance costs across the periphery countries, the move should help to buy more time, but Spain look for more aid going into 2013 as the economy is expected to contract in the following year.

Do you believe the ECB will carry out another interest rate cut at the next monetary policy meeting? Will the central bank announce any steps to resume its bond buying program?

There?s a lot of speculation surrounding the September 6 meeting as the ECB prepares to restore its asset purchase program, but President Mario Draghi may merely reiterate the statement from the previous month as there appears to be a growing rift within the Governing Council. In turn, the interest rate decision may end up turning into a non-event, and the Governing Council may refrain from laying out further details to its bond purchase program as the non-standard measure comes under increased scrutiny. However, the ECB may have little choice but to implement a range of tools over the coming months amid the growing threat for a prolonged recession. We may see the central bank carry its easing cycle into 2013 as European policy makers struggle to restore investor confidence.

For how much longer do you think gold will continue to rise? Will it manage to breach $1.900?

The recent run up in gold prices are likely to be short-lived as the Fed curbs bet for QE3, and the bullion should track lower over the remainder of the year as the less dovish tone struck by Chairman Bernanke increases the appeal of the U.S. dollar. As the FOMC appears to be moving away from its easing cycle, market participants may limit the use of the precious metal as an investment vehicle and we will look for lower gold prices as the FOMC endorses a wait-and-see approach.

Source: http://www.fxstreet.com/fundamental/market-view/conversations-with-forex-experts/2012-08-31.html

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