Calling out some key levels in play amid the buck's breakout
"As your President, one would think that I would be thrilled with our very strong dollar," posted the @realDonaldTrump Twitter account this past Thursday, Aug. 8. "I am not!" President Trump's Twitter went on to take the Federal Reserve to task for its "high interest rate level," "keeping the dollar high," and generally "call[ing] it wrong at every step of the way." Trump's preferred policy? "With substantial Fed Cuts... and no quantitative tightening, the dollar will make it possible for our companies to win against any competition," the President specified.
Trump's bearish dollar comments came just a week after the Invesco DB U.S. Dollar Index Bullish Fund (NYSEARCA:UUP) shot to its highest intraday share price -- at $26.80 -- since the early days of January 2017, back before Trump had even been sworn into office. And for what it's worth, that January 2017 price peak in UUP shares stood squarely at $26.83, precisely matching the exchange-traded fund's (ETF's) high-water mark from March 2009 -- the same month as the last major bear-market bottom.
While UUP is one of those "tweaked" ETFs that's meant to deliver supercharged returns relative to its underlying asset -- achieved, in this case, by going long U.S. dollar futures and simultaneously shorting a number of rival currencies -- the fund's path toward its recent multi-year high was neither particularly rapid nor especially erratic.
The bullish greenback tracker has been trending steadily higher all year long, boosted by the double-barreled support of its 80-day and 160-day moving averages. Previously, this trendline pair had acted as resistance to guide UUP lower during its lengthy decline off that January 2017 high -- a long-term slump that ultimately persisted well into the second quarter of calendar year 2018.
What's more, the Aug. 1 UUP intraday high was preceded by a long-term assault on, and ensuing takeout of, the overhead $26 area, which had served as a fairly rigid technical ceiling during the fund's fourth-quarter 2018 surge as equities sold off sharply around the globe. After a brief UUP pullback was contained near the 160-day moving average early in 2019, the ETF rallied back to re-challenge the $26 level by March. And by mid-April, the bullish dollar fund had finally gapped away from congestion in the area.
UUP has since successfully re-tested the $26 region as support, thanks in part to "backup" levels nearby -- including $25.99, site of the 160-day moving average, and $25.88, which marks a 23.6% Fibonacci retracement of UUP's advance from its first-quarter 2018 lows to its third-quarter 2019 high. But more recently, the ETF has been testing its footing a few notches further north, at the $26.40 level. This area -- which previously marked price peaks for UUP in March 2015 and March 2017 -- capped the May and June highs earlier this year, but has so far cushioned the fund's pullback from its Aug. 1 intraday high.
Meanwhile, traders have reacted coolly to the rise of the bullish dollar play, with etf.com reporting net outflows of $83.18 million for UUP since mid-April -- right around the time the fund was finally putting some real distance between itself and former resistance at $26. For a fund with assets under management (AUM) of $307.14 million, that's a non-trivial amount of capital yanked from UUP simultaneous with its rally gaining wheels.
That said, we have to give UUP skeptics some credit for staying critical in the face of the ETF's advance to multi-year highs. At the fund's year-to-date closing high price -- attained on July 31, one session prior to the intraday peak -- it settled squarely at $26.73, just one penny north of a 5% year-to-date gain... before going on to give up 1% in a three-day losing streak that followed (yes, even as it briefly set a new intraday high during the Aug. 1 session). This hectic-by-UUP-standards price action around this significant year-to-date percentage return suggests the bullish dollar fund could be due for some continued congestion or consolidation during the days and weeks ahead -- particularly with its 14-day Relative Strength Index (RSI) retreating from its first trip above the 70 "overbought" threshold in nearly a year.
Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, August 11.