Investors have heard the following plenty this year. The PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), the tracking exchange traded fund for the U.S. Dollar Index, is sliding and is one of this year’s worst-performing currency ETFs.
Investors have also heard plenty about the dollar’s downturn ending while those predictions, to this point, have proven inaccurate. That is not preventing some currency market observers from predicting the dollar will rebound.
UUP 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. Other currencies, including the Australian dollar, yen and Canadian dollar have recently been gaining momentum against the greenback.
“Paul Ciana, chief global technical strategist at Bank of America, says there are two charts of the dollar that show how grossly oversold it is,” reports CNBC. “The strategist is looking at the relative strength index, or RSI, of the U.S. dollar, which tracks the momentum of the dollar’s moves. The RSI has reached its lowest level in years, according to Ciana’s chart, meaning that the latest drop in the dollar didn’t have as much momentum to the downside. This leads the strategist to believe that “it could be wise to think about a little bit of a dollar long.”
Although the dollar and UUP have struggled against the backdrop of two interest rate hikes by the Federal Reserve, some currency market observers see potential for the greenback to rally in the second half of 2017.
“According to Ciana, seasonal data shows that in the month of August, the U.S. dollar has actually held strong against nine emerging market currencies, especially the Mexican peso. In other words, not only should investors be long the U.S. dollar, but they may also possibly want to short the peso,” reports CNBC.
Related: Getting Paid to Minimize Currency Risk
Heading into 2017, many bond market participants were betting the Fed would raise interest rates three times, but some market commentators believe two is the appropriate number of rate hikes this year. The Fed boosted rates in March for the first time this year and the third time in 15 months, but a dovish tone following the March meeting muted the dollar’s reaction. The dollar has struggled following the June rate hike as well.
For more information on the USD, visit our U.S. dollar category.