The PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), which tracks the price movement of the U.S. dollar against a basket of currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc, is up nearly 6% year-to-date.
That makes UUP one of the best-performing currency exchange traded funds this year, but with a rate hike from the Federal Reserve still looming, UUP’s biggest move could still be yet to come. However, after the U.S. dollar has appreciated almost 10% against its peers this year, some traders are growing cautious. For instance, Societe Generale SA’s Kit Juckes argues that the dollar is overvalued by some measures, Bloomberg reports.
Dollar ETFs have been rallying on speculation the Federal Reserve would hike interest rates from the near-zero levels. Fed Chair Janet Yellen has stated that December would be a “live possibility” for an interest rate hike if the U.S. economy continues to strengthen, and the strong jobs number help support the Fed timeline. The tighter monetary policy would diminish the supply of U.S. dollars floating around in the economy and help the greenback appreciate against foreign currencies. [Dollar ETFs Could Soar Well After Fed Liftoff]
UUP “had tested support in what we were treating as the first part of a corrective pattern. Thus, we were expecting a substantial bounce but not a skyrocketing move,” according to See It Market. “Our previous chart showed resistance levels for the expected bounce at 25.75 and 26.10. Last week, price tested the upper of those two levels. It may be time for medium-term traders to take profits from any long positions. Traders working on fast time frames might consider looking for opportunities to short the US Dollar Index or ETF (or simply go long the Euro).”
Earlier this month, the CurrencyShares Euro Currency Trust (NYSEArca: FXE) surged after the European Central Bank (ECB) disappointed by global financial markets by not expanding its quantitative easing program by as much as investors were hoping for.