How Far Will The US Dollar Rally Run?
Over the last month, the US Dollar has taken center stage in the global financial markets.
And for good reason…
As you can see, the greenback has gone parabolic…
This is a major change for the US Dollar. It had been a relatively stable pattern over the last two years. The US Dollar hugged or was drawn back to the 200-week moving average over the last two years.
Now the US Dollar is as strong as it has been in the last four years. And many believe it will continue to get stronger from here.
Here’s why…
Currencies can be volatile over short periods of time. But they also tend to have long term trends that dominate for years or even decades.
Just look at this chart of the US Dollar over the last 20 years.
During this time, the US Dollar has gone through three long-term trend changes.
It went through a bullish phase in the 90s and into the early 2000s. It went through a bearish phase from 2002 through 2008. And it has been in a neutral phase since 2008 that was neither bullish nor bearish.
The recent surge in the US Dollar is likely the first step on the next major trend change…. one that sparks a multi-year bull market for the greenback.
Right now there’s good reason for the US Dollar to be strong…
US economic growth is stronger and more stable than the expansions in other advanced economies. And right now Europe and Japan are taking action to weaken their currencies.
What’s more, the US is an attractive destination for foreign investments. The strong economy and strong currency give a double boost to the returns for foreign investments in the US.
And don’t forget, the initial enthusiasm for the euro as a reserve currency has cooled off considerably as the currency union has dealt with problems over the last several years.
Here’s the upshot…
This appears to be the start of a new period of US Dollar strength. And when trends like this get going, they tend to last for years.
The most popular US ETF to play a bullish uptrend in the US Dollar is the PowerShares DB US Dollar Index Bullish Fund (UUP). This ETF has about $713 million in assets.
At a recent price of $23.06, UUP is up about 5.8% year-to-date and it’s 9.1% above the 52-week low. And it has the potential to increase another 30% to 40% during the next uptrend.
Good Investing,
Corey Williams
Category: ETFs
