What’s the Real Probability?

FX Market Sees NEW QE Probability At 25%, Down 50% From Week Ago | ZeroHedge.

This is an interesting post. I think the numbers show that the probability numbers are correct, but I think they mean something else.

The author states that the respective balance sheets of the ECB and Fed lead to a fair value of $1.20 for the euro. The 3 cents or so premium for the Euro prices in a 25% chance of QE3; however, wouldn’t it be better to say that the probability is actually the chance that the Fed will perform another round of easing before the ECB does? I think the rapid deterioration of economic conditions in the EU makes it more likely that the ECB will try something first.  I think the Euro will continue its slide, but you never know what will happen next with these central banks.


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