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U.S. Dollar ETF Could Resume Rally

This article was originally published on ETFTrends.com.

After slumping last year, the Invesco DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP) is up nearly 3% year-to-date, making it one of 2018's best-performing currency exchange traded funds.

UUP tracks movements against a basket of currencies including euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. UUP tracks the Deutsche Bank Long USD Currency Portfolio Index – Excess Return Index.

Albeit modestly, UUP gave back some gains last week, but some currency market observers see near-term downside for the greenback but believe the dollar can generate more upside down the road.

“Bank of America Merrill Lynch believes the dollar rally isn't broken, it's just pausing for a near-term correction,” reports CNBC. “According to the firm's chief global technical strategist, Paul Ciana, the charts are suggesting the bullish run is far from over.”

Looking To The Fed

The greenback has appreciated against global currencies since January on rising expectations that the Federal Reserve will continue its gradual rate hike course. The Fed meets this month and is expected to again boost borrowing costs.

Rising inflation in the U.S. could be a catalyst for additional rate hikes, which could spark the dollar higher. However, some market observers believe other global central banks are out of ammunition for easy monetary policy, meaning dollar rivals, such as the euro and yen, could be due for some upside as well.

"Seasonality has been important this year. April is a weak month for the dollar. May is a strong month. That's exactly what played out. June happens to be another weak month," Ciana said. "What we think is happening right now is the dollar index is positioned to retrace about a third to maybe half of the uptrend that we've seen from the April lows there. If that occurs, we would see the dollar index come right into the 200-day moving average."

UUP currently resides 2.85% above its 200-day moving average and 7% above its 52-week low.

Traders considering a bearish position on the dollar can consider the Invesco DB US Dollar Index Bearish (UDN) , an inverse though not leveraged bet against the greenback.

For more information on the USD, visit our U.S. dollar category.