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More Weakness, Outflows in Dollar ETFs Would Boost Stocks in 2013


PowerShares DB US Dollar Index Bullish (UUP) was among the ETFs that saw the heaviest outflows this year as the greenback weakened against most major currencies.

The ETF, which tracks the movement of the dollar against a basket of currencies, has posted outflows of $1.2 billion year to date. It is fifth on the list of most-sold ETFs in 2012 in terms of dollar amount, according to IndexUniverse.

In fact, UUP’s outflows this year are more than its current assets under management: $662.3 million.

From a price standpoint, the dollar ETF is down about 3% year to date.

Now, a bearish technical pattern is forming in the Dollar Index that could push the greenback lower in 2013, which would provide a tailwind for stocks. [Dollar ETF Higher After QE3]

The US Dollar Index was all over the place in 2012, but ended the year slightly lower than where it started, writes Arthur Hill at StockCharts.

“From February to December, a large head-and-shoulders reversal formed with a rising neckline,” he added, noting the dollar’s bearish technical formation.

A break below the neckline “would confirm the head-and-shoulders pattern and target further weakness,” Hill said.

“Such a move would be bullish for stocks because the Dollar and S&P 500 move in opposite directions,” he wrote. “Weakness in the Dollar would suggest a strong appetite for risk, which would bode well for risky assets, such as stocks. A close above the December high would call for a reassessment of this bearish head-and-shoulders pattern.” [Dollar ETF Rally Hurts Stocks]

US Dollar Index


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