US dollar index appreciates on political uncertainty abroad

Crude oil, UUP, and SPY react to Greece’s debt plans (Part 2 of 3)

(Continued from Part 1)

PowerShares DB US Dollar Bullish ETF (UUP)

The US dollar index was trading at 94.70 as of February 10, 2015, an increase of 0.27% from the previous day. The US dollar index appreciated on the renewed concerns of Greece’s debts restructure and political tensions between Russia and Ukraine. Political uncertainty supports the US dollar rise. Last week’s increase in the US dollar against the basket of currencies was backed by the strong labor data the US Department of Labor reported.

The US dollar has been trading sideways since January 23, 2015. Quantitative easing from Europe, Greece debt concerns, and strong US economic growth have supported the rise in the dollar. However, the US dollar has not been able to break the strong resistance level of 95, as it has dropped whenever it has edged close to 95 levels.

The US dollar index continued its long-term uptrend and analysts expect it to appreciate further in 2015 due to growing economic conditions in the USA. The Federal Reserve is likely to increase interest rates in 2015. Central Banks in Europe, China, Australia, and Japan will mostly reduce interest rates in 2015.

Pumping liquidity into the economy is likely to widen interest-rate differentials. Thus, the United States will be an attractive investment opportunity. This will lead to further appreciation of the US dollar and the UUP ETF. The rise in the UUP ETF and the strong dollar put downward pressure on commodities like gold and crude oil. These commodities are dollar denominated, so a strong dollar will make these commodities expensive, which impacts oil ETFs and gold ETFs like the United States Oil ETF (USO), the PowerShares DB Oil ETF (DBO), the SPDR Gold Trust ETF (GLD), and the Market Vectors Gold Miners ETF (GDX).

Fundamental and technical factors suggest the UUP ETF could trade higher. But, UUP has strong resistance at $ 25.25. The UUP ETF has declined twice after hitting this resistance level and it is trading in a sideways range between $ 24.75 and $ 25.25. A breakout above this channel could push UUP to 2010 levels.

In the next part of this series, we’ll provide a technical analysis update for the SPY ETF.

Continue to Part 3

Browse this series on Market Realist:

  • Part 1 – Crude oil prices on a roller coaster ahead of US inventory report
  • Part 3 – S&P 500 trades at its highest since December 2014