Major equity indexes drifted higher into green territory mid-day yesterday only to fall victim to rampant profit-taking pressures just hours before the closing bell on Wall Street. Investors fretted over weak retail sales data on the home front, although looming uncertainties from Greece’s upcoming elections this weekend were the likely culprit behind today’s sell-off. Amidst the back-and-forth trading, crude oil prices fell alongside equities while gold edged higher around $1,620 an ounce [see also The Central Banks Are Buying Gold Like It's 1965].
Investors on the homefront will digest inflation data later today, which makes the PowerShares DB USD Index Bullish (UUP) our ETF to watch for the day. This ETF may experience volatile trading depending on how markets react to the latest consumer price index data; analysts are expecting for the United States. CPI to come in at -0.2% versus the previous reading which came in flat [see 3 ETF Trading Tips You Are Missing].
Chart Analysis
UUP recently hit a one-year high at $23.02 a share on May 31, 2012, bolstered by growing safe haven demand for the U.S. dollar as the debt drama in Europe has only intensified with no clear solution at hand. Despite its clear uptrend since bottoming out at $20.87 a share on August 17, 2011, this ETF has endured choppy trading along the way; notice how UUP has a tendency to decline rather rapidly after making new highs. Furthermore, investors should also take note that this ETF has marched higher while trading volumes as a whole have dropped off from their September-November averages last year, perhaps suggesting that a trend reversal may be near.
Click To Enlarge
From a fundamental perspective, however, this ETF is poised to continue its trek higher given the towering (and growing) cloud of uncertainty looming over the debt-burdened currency bloc overseas [see also Euro Free Europe ETFdb Portfolio].
Outlook
If the latest U.S. CPI data paints an optimistic picture for the economy, the dollar may face headwinds as investors jump ship to equities. In terms of downside, the first level of support for UUP comes in at $22.50 a share while major support lies near the $21.75 level. On the other hand, resurfacing debt woes and a gloomy economic outlook can propel the U.S. dollar higher on the day. In terms of upside, UUP may face potential resistance as it nears its previous high right around the $23 mark. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.
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Disclosure: No positions at time of writing.
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