Since stocks and commodities seem to take their cues from the U.S. dollar, many traders are trying to determine if the greenback’s rally is simply a technical bounce or a sign that investors are shunning risk.
PowerShares DB US Dollar Bullish (NYSEArca: UUP) was rising again Friday as oil and U.S. stocks dropped. The exchange traded fund, which follows the dollar’s movements against a basket of currencies, is on track for a gain of about 2% this week.
Meanwhile, CurrencyShares Euro Trust (NYSEArca: FXE) has been hit by fresh concerns over the sovereign-debt issues in Europe’s periphery.
The dollar ETF found support just over a week ago, followed by the recent oversold bounce, says Tarquin Coe, technical analyst at Investors Intelligence.
However, the analyst suggests a trade that would profit from the dollar resuming its downtrend.
“Sentiment towards the dollar has … reversed sharply with many analysts now talking up the dollar in favor of the euro, with many citing the problems in Greece in their reasoning,” Coe wrote in a note to subscribers Friday. “Consequently, bearish sentiment has unwound sharply as have momentum indicators; as such the greenback is now primed to reassert its multi-month downtrend.”
To play a weaker buck, investors might consider the mirror image of the dollar ETF: PowerShares US Dollar Bearish (NYSEArca: UDN).
The ETF’s chart is “trading at rising channel support as well as its 50-day exponential moving average,” Coe notes.
PowerShares US Dollar Bearish
