USD US Dollar Daily Chart Multi-Year Period Shows Effects of Quantitative Easing

The dollar chart shows a symmetrical sideways vibe that is reaching a major decision point. The dollar is going to commit to as much as a fifteen handle move in the near future.  The move will likey take two to three years to play out.  The gut, common-sense, reaction to this is that the dollar will stumble lower, obviously, due to the Fed's quantitative easing shenanigans.  A no-brainer, right?  That is why many traders flock to gold and silver, the dollar will be pummelled and inflation is at our doorstep, and gold will be the only savior. Setting this reasoning aside and exploring the chart, the red arrows show the strong pull backs in the equity markets. These market selloffs occur in concert with the dollar rising. Remember the asset relationship; dollar up=markets down, and dollar down=markets up.  When the dollar strengthens, commodities sell off and this weakens the broad indexes.

The first red arrow shows the 2008 crash into the March 2009 bottom.  The next red arrow is the April-May 2010 market selloff.  Then in 2011, markets stumbled in the springtime and the August 2011 waterfall crash occurred.  And finally, this year, with markets topping in late April and the big market selloff occurs thru May 2012. The green arrows show the drops in the dollar caused by the Fed easing. The Fed saved the markets in March 2009 with QE1, bludgeoning the dollar so the stock market could rise. The effects diminished and the dollar began its upward trek again in early 2010 which led to the market selloff. So the Fed intervened again with QE2 beating the dollar relentlessly. Thus, another market rally into 2011 but the dollar bounced again which created the August 2011 waterfall crash. The ECB got into the quantitative easing game in late 2011, along with the Fed's Opeation Twist program, to keep the dollar in a malaise and allow the stock market to move higher. Then this year the dollar buoyancy appears again causing the May market selloff but the Fed and ECB meddle in markets again, and QE3 whips the dollar again, allowing markets to rally from June thru September. The dollar takes on the appearance of a beach ball under water; QE can only do so much.

The central banker intervention has led us down this tortured path. The chart clearly shows how non-free markets work.  Note how QE1 and QE2 had a great impact on the dollar each time crushing it from the high 80's down to the mid or low 70's.  But notice the smaller moves from Operation Twist forward.  The Fed's easy money simply sits idle at banks, folks and businesses do not want or need loans. There is no velocity of money so all the easing in the world is of little use if the multiplier effect for the money is non-existent. The Fed is pushing on a string. Further, extreme danger is set up with all that money sloshing around since when the inflation does take hold, probably a lot further down the road then folks think, the easy money will create a hyperinflation mess, but that will be trouble to deal with in the future.  In the here and now, the dollar is tucked inside the sideways triangle deciding on which way to go.

The effects of QE are diminishing. Over the last couple weeks there is a sense that the Fed may be out of bullets. On Tuesday afternoon the Fed bounced markets with their talk of a stronger QE move than the QE3 Infinity and Eternity just provided. How ridiculous and obscene has it all become? The markets bounced on the carnival-barking news this week but the markets sold off directly afterwards. The Fed emperor has no clothes.  Keystone continues to believe more in the disinflation, deflation and deleveraging story moving forward rather than the inflation story. Thus, the projection is for a thick red arrow to likely occur moving forward over the next year or more, with the dollar moving higher, up thru the top rail of the triangle at 80-81, up to test resistance at 84, and higher after that. The dollar move higher will be in concert with the dollar/yen moving higher. The dollar up means the equity markets will remain weak well into and perhaps thru 2013. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.