U.S. Markets close in 5 hrs 56 mins

Dollar ETF Rallies 5% in May Breakout

tlydon@globaltrend.com (Tom Lydon)

An exchange traded fund pegged to the U.S. Dollar Index has broken out in May on Eurozone debt worries and pushed stocks and commodities ETFs lower.

PowerShares US Dollar Index Bullish (UUP - News) is on track for a gain of nearly 5% in May. [Currency ETFs: Euro at 2012 Low]

The rally has been so strong and persistent that the dollar ETF has suffered only three down days the entire month. [Dollar ETF Rally Reveals Market Fear, Risks]

From the 2011 low in late July, the dollar has risen against all 16 of its major peers, according to a Bloomberg News report Tuesday. The Dollar Index has rallied 12% and is higher than when the Federal Reserve launched its first bond-buying program in late 2008.

“The dollar is proving scarce, even after the Federal Reserve flooded the financial system with an extra $2.3 trillion, as the amount of the highest-quality assets available worldwide shrinks,” according to the report.

“We’re seeing many more periods of dollar buying during these uncertain times,” Ken Dickson, an investment director of currencies at Standard Life Investments, told Bloomberg.

“The U.S. dollar is, for lack of a better phrase, the best house in a bad neighborhood,” adds David Urban at Seeking Alpha.

UUP, the dollar ETF, climbed to a new 52-week high of $22.86 a share on Tuesday.

“The recent ‘pop’ higher has the dollar on the edge of a technical breakout. And further, with the equity and debt markets battling uncertainty, the direction the dollar takes over the coming weeks/months will be important to the ongoing 2012 domestic and global market theme,” wrote Anderw Nyquist at Minyanville on Tuesday.

“Over the past month, the dollar has stealthily pushed higher into important resistance, flooring commodities, hitting equities, and adding a strong whiff of deflation to the air,” he added. [Safe-Haven Currency ETFs Shine in Euro Crisis]

PowerShares US Dollar Index Bullish