Dollar Fund Eyes Worst Weekly Losing Streak in Years

UUP shares are set for their worst week since 2016, as the dollar declines

Jan 25, 2018 at 10:21 AM
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The U.S. dollar has been hammered recently, and yesterday fell to a three-year low against a basket of foreign rivals, after Treasury Secretary Steve Mnuchin waxed optimistic on a weaker greenback. Against this backdrop, the PowerShares DB US Dollar Index Bullish Fund (UUP) is pacing for a seventh straight weekly loss -- something that's happened just one other time in history -- and option bears are coming out of the woodwork.

Since touching a post-financial crisis high of $26.83 in January 2017, it's been mostly downhill for the UUP exchange-traded fund (ETF). The fund suffered a steady slide through the first three quarters of 2017, and a fourth-quarter rebound attempt was halted by its 32-week moving average. So far this week, UUP shares are down roughly 2.1%, set for their worst week since July 2016. At last check, the ETF was down 0.6% on the day, to trade at $23.15 -- fresh off a three-year low of $23.10.

As alluded to earlier, the dollar ETF is pacing for a seventh straight losing week. There has been only one other such streak for UUP in history -- back in July 2010. In fact, the fund extended that streak to eight weeks, giving up another 1.04% the subsequent week. The weekly losing streak also preceded negative intermediate-term losses, with the shares dropping another 6.34% over the following three months, per data from Schaeffer's Senior Quantitative Analyst Rocky White.

Considering the dollar's decline, it's not surprising to find accelerated put buying on UUP lately. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), UUP's 10-day put/call volume ratio is in the 90th percentile of its annual range, pointing to a much healthier-than-usual appetite for bearish bets over bullish during the past two weeks.

As such, the ETF's 30-day implied volatility skew of 2.7% stands in the lofty 86th percentile of its annual range. In simple terms, this indicates that UUP's short-term calls have rarely been cheaper than their put counterparts in the past year.


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