Rising Dollar ETF Could Halt Stock Rally

ETF Trends

PowerShares DB US Dollar Index Bullish (UUP) has rallied about 4% the past month to trade above its 200-day simple moving average for the first time since August 2012.

The greenback’s recent strength has put equity bulls on alert since the U.S. dollar and stocks have exhibited a negative correlation. When the dollar rises, it generally hasn’t been good for stocks.

UUP tracks the value of the U.S. dollar relative to a basket of the six major world currencies — the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.

Much of the dollar ETF’s strength recently has been driven by a declining euro with the region’s debt crisis back in focus following the Italian parliamentary elections. The euro comprises about 58% of the currency basket in UUP. [Italy ETF Swings Lower on Berlusconi, Election]

Chris Kimble at Kimble Charting Solutions points out that the US Dollar Index is working on a breakout of a resistance line that goes back a decade.

The currency index breaking out of a 10-year falling channel is “something to respect, after it has made a series of higher lows since 2008,” Kimble notes.

So far, a higher dollar hasn’t hurt U.S. stocks as the Dow flirts with its record high from 2007. [ETF Chart of the Day: Dow Jones Industrial Average]

However, a rising greenback has dented commodity ETFs including iPath Copper ETN (JJC), SPDR Gold Shares (GLD) and U.S. Oil Fund (USO). [Copper ETF Decline Negative for Global Economy?]

PowerShares DB US Dollar Index Bullish

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Full disclosure: Tom Lydon’s clients own GLD.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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