Wall Street got off to a roaring start as optimism from the euro zone spilled over on Monday. Domestic equity indexes surged, with the Dow Jones Industrial Average gaining upwards of 300 points, as investor confidence saw a big boost after France and Germany pledged their full support to restoring stability in the banking sector of the debt-stricken Euro zone. German Chancellor Angela Merkel and French President Nicolas Sarkozy said over the weekend that they would reveal plans for a banking-sector recapitalization by early November. Surprisingly, gold also made a move higher on Monday amidst the equity market euphoria, and the precious metal inched higher to close near $1,670 an ounce for the session.
Last month’s FOMC meeting unveiled the so-called “Operation Twist“, which proved to be a major headwind for stock markets upon its release. Investors will be paying close attention to the FOMC minutes as they are released later today, in an effort to gain more insight into the Fed’s decision making process in regards the most recent Fed meeting. The release of the FOMC minutes may spark volatile trading in the currency markets, which makes the PowerShares DB USD Index Bullish (UUP) our ETF to watch for the day.
Since bottoming out at $20.84 a share on 5/4/2011, UUP has gained close to 5%, while the S&P 500 has lost upwards of 11% in this same time period. After the peg of the Swiss franc to the euro, investors flocked to the U.S. dollar, showcasing that the greenback still has plenty of safe haven appeal left.
In early September, UUP broke out above its 200-day moving average (yellow line) for the first time since February of 2010, quite the noteworthy feat given the historical decline of the U.S. dollar [see more fundamentals of UUP here].
Although the fund is back above its 200-day moving average, it’s still far too early to call this a long-term trend reversal. UUP has lost a bit of steam over the past week as equity markets have staged an impressive rebound. The fund has drifted back towards its 200-day moving average and investors should keep an eye on this ETF as its attempts to establish support above $21.50 a share [see more charts of UUP here]. If the FOMC minutes spark a rally for the greenback in the currency markets, UUP can easily climb back above the $22 level. In terms of downside, the next major level of support comes in at $21 a share. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.
Disclosure: No positions at time of writing.