PowerShares DB US Dollar Index Bullish (NYSEARCA:UUP) — Central bankers have been the most important participants in the global financial markets since the financial crisis of 2008, so it should be no surprise that the Federal Open Market Committee (FOMC) got everyone’s attention with its slightly “hawkish” monetary policy statement this afternoon.
The FOMC reiterated its willingness to be “patient” with its decision to raise interest rates. However, it also changed some of the verbiage in its statement. Instead of economic activity expanding at a “moderate pace,” it is now expanding at a “solid pace.” And instead of the labor market showing “solid gains,” it is now showing “strong gains.”
Whether or not policymakers were actually looking to send a hawkish signal, they should have known the tea-leaf-reading analysts on Wall Street would be looking for any sign that could lead to interest rates rising sooner rather than later.
While fears of an interest rate hike led to a sell-off in the stock market, it did the opposite for the U.S. dollar. Higher interest rates tend to lead to a higher valuation for that economy’s currency.
Couple that with the fact that the European Central Bank (ECB) and the Bank of Japan are still knee-deep in their own quantitative easing programs, and you have a recipe for a greenback that is bound to increase in value against the euro and Japanese yen for quite some time.
One way to take advantage of a rising dollar is to buy UUP.
As you can see in the daily chart below, this is not a new bullish trend for UUP, but the rate at which the ETF is moving higher is starting to accelerate.
Based on the previous resistance level established on the weekly chart (below) in 2008, we anticipate UUP could easily march its way up above $27 in the not-too-distant future.
As long as the ECB is engaged in monetary easing by pumping 60 billion euro into its economy each month and the Fed is on the cusp of engaging in monetary tightening by raising interest rates, the value of the dollar and UUP has nowhere to go but up.
John Jagerson and Wade Hansen are the editors of SlingShot Trader, helping investors capture options profits trading the news by using a proprietary, 100% news-driven trading platform that turns event-driven pricing inefficiencies into fast profits. Get in on the next trade and get one free month today.
New to options and need more personal guidance? Try our online options course: Strategic Investing and receive your first two weeks free by clicking here.
