UUP: A Minor Breakout for the Buck?

UUP call buyers closed out a glut of options last expiration Friday

Bernie Schaeffer
Jan 24, 2017 at 8:59 AM
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The U.S. dollar was thrust into the headlines last week, when then-President-elect (and now POTUS) Donald Trump described the currency as "too strong" in a Wall Street Journal interview (a comment that Treasury Secretary nominee Steven Mnuchin later tempered by describing it as a "short-term" view). In response, the PowerShares DB US Dollar Index Bullish Fund (UUP) dipped on Tuesday to a one-month low of $25.91 in intraday action.

The air around $25 is very familiar territory for UUP. Out of its 24 monthly closes since January 2015, the exchange-traded fund settled within 0.5 point of $25 on no fewer than 17 occasions (or 70% of the time), including its yearly finish for 2015. This neighborhood is home to a cluster of key price points, including:

  • $25.06 (November 2016 low)
  • $25.23 (July 2016 high)
  • $25.72 (UUP's year-over-year breakeven)
  • $25.76 (1.2 times the May 2014 low)
  • $25.81 (80-day moving average)
  • $25.95 (50% retracement of 11/4/2016 low to 1/3/2017 high)

However, following its mid-November gap higher, UUP has twice found support at $25.80 -- once on Nov. 14, and again on Dec. 5 -- and then rallied back up above $26 just a few days later. And over the past two months, UUP has now spent more time trading north of $26 than it has since the late "aughts."

This small-scale breakout was met with much excitement from options players, with open interest on UUP arriving, as of Friday morning, at 757,611 contracts -- in the 97th percentile of its annual range. And option volume on UUP ramped up to double the usual level on Friday. Per Trade-Alert, most of the action was centered around the expiring January 26 call -- where retail-level traders sold to close just shy of 25,000 contracts, according to International Securities Exchange (ISE) data, on a day where UUP settled at $26.03 (essentially guaranteeing that these would-be dollar bulls took a loss on their purchased calls).

With UUP trading above a bevy of significant chart milestones, and a crop of dollar bulls getting burned by the ETF's expiration-day finish, it should be interesting to see whether the current pullback in UUP is once again contained at the "micro round number" price of $25.80 (which would suggest the dollar ETF has found a new floor), or whether the $25 level once again exerts its magnetic pull on the buck.

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