It has been a rough year for the U.S. dollar. 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 one of the worst-performing developed markets currency exchange traded funds this year.
While it will take more than just a few days to break that trend, UUP has traded modestly higher over the past week, even as some commodities prices have continued climbing, perhaps giving greenback bulls hope that the dollar is ready to end its bearish ways.
Related: Are Dollar ETFs Ready to Rally?
The dollar and UUP have been weakening this year after the Federal Reserve signaled it would take a gradual approach toward interest rate normalization, dashing bets that a tighter monetary policy would support the greenback.
However, the dollar could strengthen as analysts attribute the seasonal effect to selling in stocks and commodities that typically occur in May. The sell-off would drive demand for safe-haven assets, like the U.S. dollar.
[related_stories]The upcoming G7 meeting has been a focal point for traders, as world leaders cannot come to a consensus on currency policy. Nevertheless, Japanese leaders are expected to take a bit of heat from their G7 counterparts, even if it is only lip service. Japan is hoping leaders will come to an agreement on the need to boost fiscal spending, which has been resisted by Germany. Such an agreement would likely provide Japanese Premier Shinzo Abe a justification to delay raising the country’s sales tax and give him leverage to deploy more fiscal stimulus. An agreement to increase government spending also could put some downward pressure on the Euro,” according to OptionsExpress.
Currency ETFs try to reflect the performance of a single currency or a basket of currencies. ETF providers structure their currency funds to try to reflect the movements of a currency in a foreign exchange market by holding foreign currencies directly, foreign currency denominated short-term debt instrument, derivatives or swaps.
Related: How to tap the Forex Market With ETFs
“We see the cash US Dollar Index (DXY) prices bouncing back strongly in recent sessions. The DXY is now back above previous support of 94.00. The recent close above the 20-day moving average suggests that a near-term low may be in place. Prices have been testing the 50-day moving average over the past several sessions. A close above the average could be a signal of further near-term strength,” adds OptionsExpress.
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PowerShares DB U.S. Dollar Index Bullish Fund
