The U.S dollar has found support going into the week but is the uptrend ready for bullish resumption? What is interesting: the latest move upward in the U.S. dollar has been driven by positive risk events, such as the better-than-expected US employment data.
Traders can use the Power Shares US Dollar Index Bullish Fund (UUP, quote) which seeks to track the price and yield performance of the Deutsche Bank Long US Dollar Futures index, to trade this story. The index is comprised solely of long futures contracts designed to replicate the performance of being long the U.S dollar against the euro, yen, British pound, Canadian dollar, Swedish krona and Swiss franc.
The EUR/USD is locked in a range with traders looking for break and close above 1.3550 or a break and close below 1.3360 before a short term direction can form.
The preliminary meeting between Germany and France along with the EU summit will be in focus all week, however, trader may want to keep an eye on central bank activities. The Australian and European central banks are expected to cut rates again, while New Zealand, Canada and the United Kingdom should be looking to leave policy unchanged.
Recent shift in dollar sentiment can benefit the U.S. dollar price with positive U.S. economic data. In the past, any strength of U.S. economic data has presented a fresh round broad base selling in the U.S. dollar, until lately.
Some analysts are using the rationale that the U.S. was the first into the crisis back in 2008 and therefore will be the first to emerge from the depths of the economic turmoil. Should the U.S. show sustained signs of recovery, the Fed will be need to consider reversing monetary policy, which will narrow yields in favor of the U.S. dollar.
Others cite the U.S. treasury markets as being the largest and most liquid markets in the world, defaulting to a position where the U.S. dollar remains the world’s safe haven.
No matter what camp you are in, traders cannot dispute the U.S. dollar has found its footing here and has a real possibility to continue its upward trend — if not in the immediate timeframe, then in the near term.
The UUP will allow traders to weather the sharp moves of intraday trading in the forex market with only one currency pair.