Traders are keeping a close eye on the bounce in the dollar since many assets including commodities and stocks have shown an inverse correlation with the greenback in recent years.
When the dollar weakens, it’s usually a good sign for equities and commodities such as oil and precious metals. The question is whether this week’s dollar rally is the start of a trend change or simply a brief respite from the move lower.
PowerShares DB US Dollar Index Bullish (NYSEArca: UUP) has risen about 3% over the past week and was up fractionally in Thursday’s premarket. The ETF follows the movement of the dollar against a basket of currencies.
The dollar ETF is testing its 50-day moving average after falling below this key indicator in early 2011. If the currency ETF can break through here, the rally could pick up strength because so many traders are betting against the dollar.
PowerShares DB US Dollar Index Bullish
Conversely, CurrencyShares Euro Trust (NYSEArca: FXE) on Wednesday dropped below its 50-day moving average. The ETF tracks the euro’s movement relative to the dollar.
CurrencyShares Euro Trust
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.