Wednesday’s ETF Chart To Watch: DB USD Index Bullish (UUP)

by on August 1, 2012 | ETFs Mentioned:

Bearish pressures swept over Wall Street in anticipation of today’s FOMC meeting, which should welcome volatile trading as usual. Uncertainties in the overseas currency bloc further intensified as Germany expressed its concerns over restarting the European Central Bank’s bond-buying program, leading many to question just what measures will be announced come Thursday. On the domestic front, home prices increased more than expected while consumer confidence also crept higher, with the figure coming in at 65.9 versus the expected 61.4 [see also ETFs To Hedge Rising Prices At The Pump].

Investors will focus their attention on comments from Chairman Bernanke later today as the FOMC announces its interest rate decision and offers commentary on the economic outlook. As such, our ETF to watch for the day is the PowerShares DB USD Index Bullish (UUP, A), which could experience volatile trading depending on investors’ reaction to the latest remarks from the Fed. Markets are hoping for more easing, although the Fed may hold off until the ECB announces its strategy going forward on Thursday of this week [see also ETFs And The LIBOR Scandal].

Chart Analysis

UUP appears to be holding support above the $22.60 level after correcting lower since its most recent peak at $23.14 a share set on July 24, 2012. This fund has been floating under the $22.80 mark for four consecutive days now, which may suggest that investors are awaiting commentary from the Fed and ECB before jumping back in long. The longer-term trend at hand is undoubtedly upwards; however, UUP could correct lower towards its 200-day moving average (yellow line). If the Fed and ECB shed optimism this week, it would likely translate into a rally for equities and a sell-off for safe havens, including the U.S. dollar [see 101 ETF Lessons Every Financial Advisor Should Learn]. 

Click To Enlarge

From a technical perspective, UUP has the bulls on its side, although trading volumes have been fairly light over the past three months when compared to activity in late 2011 and earlier this year, which may suggest that positive momentum is slowing down [see ETF Technical Trading FAQ]. 

Outlook

If Chairman Bernanke sparks a sell-off for equity markets, the U.S. dollar may find itself in bright green territory for the day; in terms of upside, this ETF has resistance near its previous high at $23 a share. On the other hand, worrisome remarks from the Fed could pave the way higher for the greenback in the currency market; in terms of downside, UUP has support at $22.60 a share followed by the $22.40 level. 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.