Post-FOMC Observations: Big Drop Ahead For S&P?

 | Mar 19, 2014 03:14PM ET

Lastly, taking a look the US dollar via the spot futures continuous contract. I've denoted the $84.50 level (grey horizontal line) which is the settlement price of March 18th, 2009 (QE 1). During the entire time where the Federal Reserve was significantly adding to it's balance sheet, the value of the USD fluctuated from positive 5.2% to negative 13.79%, according to the futures price chart. And the actual swing low came in 2008 before quantitative easing had begun.

Now it's quite obvious on the chart above that the USD had experienced significant devaluation leading into the financial crisis and Fed response. It's quite possible that the market began to price in what was to come, will in advance. Regardless the drop in the USD was 40% from the 2001 high to the 2008 low. And all without more than a brief 38% retrace rally during the financial crisis of 2008 where investors fled from risk assets and demanded USD and treasury bonds.

It's clear from a technical point of view that the USD is still well within a long term downtrend. For me it would take a break above the $90 level to begin to think otherwise. Until then a revisit of 2008 lows is quite possible.

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Written By: Michael Gouvalaris

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