ETF Trends
ETF Trends

After months of being a laggard among developed market currencies, the U.S. dollar has recently been showing signs of firming.

Ongoing dollar strength will likely benefit the PowerShares DB US Dollar Index Bullish Fund (NYSEArca: UUP) and the newer WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEArca: USDU). Since May 6, UUP is higher by 1.5% while USDU is up two-thirds of a percent. [Dollar ETFs Could Surge]

Dollar charts say more gains could be on the way.

The U.S. Dollar Index (DXY)chart is close to showing two technically significant developments. Firstly, a “Golden Cross”on a monthly basis where the 50-month crosses up and through the 100-month moving average is close to completion. That is something that has only happened once in the last 25 years. The last time a Golden Cross formed the DXY appreciated over the next five years significantly on a total return basis. Secondly, if the DXY can close above ~80.599 (vs. last ~80.495) by Friday than it will have concluded an outside bullish monthly reversal,” said Rareview Macro founder Neil Azous in a research note.

UUP is akin to a U.S. Dollar Index tracking ETF with the euro occupying 57.6% of the ETF’s portfolio, positioning the fund to be a conservative option for investors looking to benefit from possible quantitative easing from the European Central Bank. The ECB next meets on June 5. [ETFs for ECB Easing]

“As a reminder, model driven strategies pay more attention to long-term rather than short-term signals and a monthly reversal would be considered a trigger. For any discretionary macro manager it would also force the questions of whether being long the US Dollar is a strategy that has to be embraced and will provide an opportunity to claw back from negative performance,” added Azous.

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