Currency traders can use short U.S. dollar exchange traded funds to hedge against any pullbacks in the greenback momentum. However, many remain predominately bullish on the USD outlook.
The PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP) and WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEArca: USDU) both dipped about 0.4% Thursday after back-to-back daily gains pushed both ETFs’ relative strength index into overbought territory. Over the past week, UUP rose 4.8% and USDU gained 3.6%. [King Dollar ETFs Assert Their Royalty]
Meanwhile, the PowerShares DB US Dollar Index Bearish Fund (NYSEArca: UDN) has declined 4.4% over the past week and was trading deep into oversold territory. However, UDN inched up 0.2% as the USD weakened Thursday.
Nevertheless, ETF investors still appear to be bullish on the U.S. dollar. For instance, UUP has attracted $160.9 million in net inflows so far this month, according to ETF.com data.
Consequently, the recent pullback may be a result of a some good old fashion profit taking after the dollar index, which measures the greenback against a basket of foreign currencies, reached 100.06 late Wednesday, its highest since April 2003, Financial Times reports.
On the other side of the trade, some euro ETF traders are trying to catch a falling knife after the long descent. The CurrencyShares Euro Currency Trust (NYSEArca: FXE) has attracted $135.6 million in net inflows so far this year and added $31.9 million so far this month, but there is also a chance that some are acquiring more shares of FXE shares for short sales. However, the largest inverse euro ETF, the ProShares UltraShort Euro (NYSEArca: EUO), which provides 200% of the inverse return of the U.S. dollar price of the euro, has seen outflows of $22.6 million in March. [Euro Currency ETFs Could Still Tumble Lower]
Looking ahead, currency traders still believe that the U.S. dollar could reach parity with the euro currency, especially as the U.S. continues to generates strong economic data and the European Central Bank engages in a quantitative easing program.
“I think we’re heading towards parity and that’s the logical conclusion of where we’re heading next,” David Zahn, head of European Fixed Income at Franklin Templeton, said on CNBC. “Originally, I was thinking next year (we’d see parity), but at the rate we’re going it does seem like it could be much sooner than that.”
PowerShares DB U.S. Dollar Index Bullish Fund
For more information on the dollar, visit our U.S. dollar category.
Max Chen contributed to this article.