What is important is why we had such wild swings in the financial markets and what caused them. On December 1, 2008, Ben Bernanke signaled that the US was taking measures similar to what the Bank of Japan did when they couldn't lower rates any further to avoid a deflationary spiral.
Furthermore, during the December 15-16 FOMC meeting, they lowered interest rates to 0% while making it official that they would pursue a policy of treasury purchases; or Quantitative Easing Phase I.
Subsequently while the S&P 500 continued to spew margin calls at the turn of the new year, EUR/USD fell back down to the 1.24-1.30 value area.
That's when expectations ran high once again that on the March 17-18 FOMC meeting of 2009 the Fed would finally announce that they're forced to begin outright purchases of everything under the sun. Que the risk rally until December 2009 payrolls, and a bit further for equities as the European sovereign debt crisis took hold.
Times are vastly different today. Nevertheless what counts are the rising expectations of further quantitative easing, possibly after the November elections. That's why it's important to take into account previous history as the USD sells off. Using historical analogs will help determine the general shape of price action that we can expect until the Fed finally makes it's decision for or against Quantitative Easing Part II.
|The Pound Sterling reacts initially to US rates, but history shows |
that the UK is not far behind the US in policy implementation.
E-Mini S&P 500 futures reacted to a poor economy but the cheap US Dollar
drove an equity rally into 2010.