The Buck is Back

One rather significant event of the week was the Euro and, since the dollar index consists of over 50% comparison to the Euro, the US Dollar. The Euro broke a strong level of support at 125 and reached a level it hasn't see in over 4 years.

This may not be news to you and it may appear that the dollar/euro moved has become extended and a bit overcrowded. This may be true but this will not be a short term move. The dollar tends to trend in 6 - 10 year ranges. Over the past 20 years the dollar bottomed in 1992, followed by a 10 year up move that peaked in 2002, and bottomed again in March 2008 following 6 years of falling. It appears we are 2 years into a longer term up moved in the dollar.

How to play this dollar move?

Consider: PowerShares DB US Dollar Index Bullish Fund (UUP) This ETF tracks the US Dollar index and is a perfect way to play an up move in the dollar without having to trade in the currency market. As you can see from the chart, UUP does appear to be a bit extended here. Since we early on in a long term up move in the dollar, we see this as a longer term position. But, given the recent run up, we would consider buying a partial position here and then adding to it on a pullback to the mid $23 range.

Note: in the spirit of complete disclosure, we do not have a position in UUP but we do own another long dollar fund.

Avoid: CurrencyShares Euro Trust (FXE) As we stated above the Euro has broken all previous support at 125 and FXE, which tracks the Euro currency, is in a similar situation. There is no near term support in sight so any bounces from here will most likely be short lived. We would avoid FXE for the foreseeable future.