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Art Cashin: We could be in trouble

The U.S. equity market could experience another leg lower now that the S&P 500 has broken a key technical level, Art Cashin said Friday.

"So far, the S&P stopped at about 2,020, which is where it held back on Nov. 16, before it started a pretty significant rally. If we weaken again, and it violates that area, we could be in trouble," the director of floor operations for UBS at the NYSE told CNBC's "Squawk Alley."

The benchmark index hit a low of about 2,015 on Friday as investors digested oil futures hitting fresh multiyear lows as well as a fall in the high-yield bond market.

U.S. crude dropped below $36 a barrel for the first time since 2009, while Brent plunged below $39 a barrel for the first time since 2008.

In the junk bond space, the SPDR Barclays High Yield Bond ETF (JNK) ht a new 52-week low on news that Third Avenue Management is liquidating its junk bond fund.

"That's been sort of a simmering problem, but it hasn't really had an effect on the market," Liz Ann Sonders, chief investment strategist at Charles Schwab, told "Squawk on the Street" on Friday.

The market has seen increasing volatility this week, with the CBOE Volatility Index gaining more than 60 percent, as investors also prepare for the Federal Reserve policy announcement due Wednesday. According to the CME Group's FedWatch tool, the likelihood of a rate hike next week is 81 percent.

However, Cashin said a fall in emerging market currencies could make it tougher for the U.S. central bank to pull the trigger. "If emerging market currencies keep falling, the Fed is going to have an awful decision in its hands," he said.

The Brazilian real fell nearly 2 percent against the dollar Friday.

"Anybody who thinks the Fed can somehow extract themselves from this policy in any smooth way is delusional. There is going to be pain of some sort, it's just a matter of what degree," Peter Boockvar, chief market analyst at The Lindsey Group, said in another "Squawk on the Street" interview.

"When you go so far one way deep into excessive monetary policy, there's always going to be some hangover."

— Reuters contributed to this report.