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.
USDU, which debuted in December 2013, allocates a combined 50.3% of its weight to the euro and Japanese yen, another currency beholden to the whims of a major global central bank. Last week, Bank of Japan Governor Haruhiko Kuroda said investors should expect the yen’s recent strength to persist.
Predictably, the greenback’s strength is proving cumbersome for commodities. In particular, gold. Over the past 90 days, UUP is up half a percent, but the SPDR Gold Shares (NYSE: GLD) is down 4.5%.
Of the 10 worst non-leveraged ETFs to this point in Wednesday’s session, eight are commodities plays including the iPath Dow Jones-UBS Coffee Total Return Sub-Index ETN (NYSEArca: JO) and five gold mining ETFs. [Gold Miners Gains Nearly Gone]
PowerShares DB US Dollar Index Bullish Fund
