Seasonal trends make for nice anecdotes and they can be rewarding when properly applied in concert with other, more stringent technical indicators.
With that in mind, it is worth noting that two of 2014’s best currency exchange traded funds – the PowerShares DB U.S. Dollar Index Bullish Fund (UUP) and the WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU) – could start 2015 in fine form because the U.S. dollar historically performs well in January. [Dollar ETFs Could Rise Again 2015]
“As the U.S. dollar is entering its strongest seasonal month of the year, the chart below reflects that it is nearing a 10-year resistance line, as 87% of investors are bullish the U.S. dollar right now,” according to Chris Kimble of Kimble Charting Solutions.
Historical data confirms the bullish January outlook for the greenback. The U.S. Dollar Index, which UUP serves as the tracking ETF for, averaged a January gain of 0.9% over the past 20 years, rising in 60% of those Januarys, according to EquityClock.com. That makes January the best month in terms of average performance for the U.S. Dollar Index and puts the first month of the year into a tie with May in terms of gain frequency.
UUP and the actively managed USDU, which includes some emerging market exposure, could deliver more upside in 2015 because investors are expecting the Federal Reserve to raise interest rates while other developed market central banks are actively moving to weaken their currencies.
For instance, the Bank of Japan is implementing policies centered on a weaker yen, and the stubbornly low inflation rate in the Eurozone leaves the European Central Bank more room for stimulus measures.
Additionally, the Swiss National Bank is racing the ECB to the bottom, purchasing euros to defend its franc currency. Switzerland relies on its export industries, so the country has been depreciating its currency in response to heavy safe-haven demand. http://www.etftrends.com/2014/12/improving-fundamentals-to-support-usd-etf/
UUP and USDU are up 11.4% and 8.1%, respectively, over the past year. UUP added $ 246.7 million in new assets over the past year, a total exceeded by just seven PowerShares ETFs.
ETF Trends editorial team contributed to this post.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
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