The recent mood in the market has surely been a volatile one
to say the least. Last week, the S&P 500 breached the
psychological level of 1500; however, it quickly bounced back
from there the subsequent trading session. Of course recent
economic data from the U.S as well as across the Atlantic haven't
been entirely positive as well (see
Two Amazing ETFs For S&P 500 Exposure
The somber looking GDP reading from the Eurozone and the dip
in U.S. Housing Starts number caused a sell-off from the equity
markets. Furthermore, the drama out of the FOMC meeting has added
to the already tense sentiment in the market. Certain members of
the Fed are determined to decelerate or even stop the monetary
Also, the ultra loose monetary policy currently being
implemented by the Bank of Japan, is having a profound effect in
the currency market. The yen has lost around 15% versus the U.S.
dollar in the past few months, while uncertain politics have
weighed on the euro as well (read
Three Different Types of Currency Hedged ETFs
Against this backdrop, let us have a closer look at the chart
PowerShares DB U.S. Dollar Index Bullish ETF (
which hints towards more upside for the U.S.Dollar in the near
UUP had witnessed a substantial sell off since early September
as the U.S. dollar was in a downtrend from September 2012
This was mainly thanks to the likes of Quantitative Easing
implemented by the Federal Reserve since mid September. It was
that time when riskier asset classes like equities and
commodities surged, but the U.S. dollar witnessed
The dollar ETF has, however, very recently shown bullish signs
and broken out from the descending triangle pattern on the
This breakout can be perceived to be weak as it was not
supported by strong volumes. On the contrary, volumes in UUP have
witnessed a substantial decline from earlier this year (read
Inside The Only Singapore Dollar ETF (FXSG)
Nevertheless, this breakout seems to have great momentum.
Still, it is prudent to note that the current levels for UUP are
extremely crucial for the currency ETF. UUP is currently trading
near its 200 DMA line (green), which is a stiff resistance for
In fact, UUP earlier had tried to break out above the 200 DMA
line in early November but failed to do so. This was
characterized by the 100 DMA line (red) death crossing with the
200 DMA line. This bearish cross had resulted in a rangebound
trading activity for the ETF which also established a crucial
support level of $21.60 for UUP.
However, with the recent breakout of the triangle it seems
that finally the ETF will be able to conquer its 200 DMA line.
Also, looking at its vital trendlines, the 50 and 100 DMA lines,
both are upward rising which probably hints towards positives for
the dollar ETF (read
Brazil ETFs in Trouble?
If that wasn't enough, the fundamental aspects of the
situation are looking good as well. The euro and the Japanese yen
together account for a lion's share of 71.2% of the dollar ETF.
These are followed by the British pound having an 11.9% weighting
in its portfolio.
With the recent monetary easing measures in Japan (and the
G-20 summit overlooking it) coupled with a volatile trading week
ahead in Europe ahead of the Italian elections, the U.S. dollar
looks favorably poised.
And this is even without considering the possibility of a
deceleration in the domestic U.S monetary easing program which
looks remote at present (read
Japanese Yen ETFs: Any Hope in 2013?
It is also worthwhile noticing that the ETF is overbought as
this point, but it should not be much of a worry. This is because
the overbought condition is likely to be neutralized by range
bound trading activities over the course of the next few
This is more likely to happen after the 200 DMA breakout when
the ETF goes into highly overbought territory. In any case the
range-bound trading sessions after the breakout will only help to
consolidate those levels.
However, a long position at current level is very dicey. And
it is crucial for investors seeking a long position in the ETF to
actually witness the resistance breakout of the 200 DMA line.
That will surely fuel its surge upwards.
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CRYSHS-BRI PD S (FXB): ETF Research Reports
CRYSHS-EURO TR (FXE): ETF Research Reports
CRYSHS-JAP YEN (FXY): ETF Research Reports
PWRSH-DB US$ BU (UUP): ETF Research Reports
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