Rising Dollar ETF Could Halt Stock Rally
March 1st, 2013 at 10:47am by John Spence
PowerShares DB US Dollar Index Bullish (NYSEArca: UUP) has rallied about 4% the past month to trade above its 200-day simple moving average for the first time since August 2012.
The greenback’s recent strength has put equity bulls on alert since the U.S. dollar and stocks have exhibited a negative correlation. When the dollar rises, it generally hasn’t been good for stocks.
UUP tracks the value of the U.S. dollar relative to a basket of the six major world currencies — the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.
Much of the dollar ETF’s strength recently has been driven by a declining euro with the region’s debt crisis back in focus following the Italian parliamentary elections. The euro comprises about 58% of the currency basket in UUP. [Italy ETF Swings Lower on Berlusconi, Election]
Chris Kimble at Kimble Charting Solutions points out that the US Dollar Index is working on a breakout of a resistance line that goes back a decade.
The currency index breaking out of a 10-year falling channel is “something to respect, after it has made a series of higher lows since 2008,” Kimble notes.
So far, a higher dollar hasn’t hurt U.S. stocks as the Dow flirts with its record high from 2007. [ETF Chart of the Day: Dow Jones Industrial Average]
However, a rising greenback has dented commodity ETFs including iPath Copper ETN (NYSEArca: JJC), SPDR Gold Shares (NYSEArca: GLD) and U.S. Oil Fund (NYSEArca: USO). [Copper ETF Decline Negative for Global Economy?]
PowerShares DB US Dollar Index Bullish
Full disclosure: Tom Lydon’s clients own GLD.
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