We recommend opening a new bullish trade on PowerShares DB US Dollar Index Bullish (NYSEARCA:UUP).  The monetary-policy tightening steps the People’s Bank of China (PBOC) took recently sent shock waves throughout the financial markets, especially the forex market. The strengthening Chinese yuan (CNY) led to a stronger Japanese yen (JPY), which in turn led to a weaker U.S. dollar (USD) by comparison. This gives us a great entry point to buy calls on UUP — an ETF that tracks the value of the USD compared to a basket of other currencies.

You see, the value of the USD has been getting stronger and stronger as the Federal Open Market Committee (FOMC) has wound down its quantitative-easing (QE) program and is preparing to start raising interest rates sometime in 2015. This is exactly what we would fundamentally expect to see. Countries with higher interest rates tend to have stronger currencies.

So, with the European Central Bank (ECB) and the Bank of Japan (BOJ) doubling down on their easy monetary policies, the USD is getting much stronger compared to the JPY and the euro (EUR). We expect this trend to continue well into 2015. That’s why the reaction to the news from the PBOC is such a great opportunity. It forced a short-term pullback on UUP, which gives us a great opportunity to enter a new bullish trade to play the upside in the USD.

We expect UUP to continue climbing up to $24 before it encounters any new resistance. At this point, you have to go all the way back to August 2010 to find any historical resistance for UUP. We are buying the March expiration to ensure we have plenty of time to allow this strong fundamental move to play out.

‘Buy to open’ the UUP March 24 Calls (UUP150320C00024000) for a maximum price of $0.25.