4 Ways Anyone Can Trade the Dollar

03/02/2012 7:00 am EST

Focus: FOREX

John Nyaradi

Publisher, Wall Street Sector Selector

Popular US dollar tracking ETFs like these four enable all traders—even those who operate outside the currency markets—to capitalize on US dollar price movement.

The US dollar and US dollar ETFs rose in value late this week after the Fed failed to mention any plans about further easing of the economy through lower interest rates or bond-buying programs.  The PowerShares DB US Dollar Index Bullish ETF (UUP), which directly tracks the performance of the US dollar, rose .83%, while the PowerShares DB 3x Long US Dollar Futures Index ETN (UDNT), which amplifies gains on the US dollar performance, rose 2.277%.

The US dollar and dollar ETFs likely rose due to the fact that Dr. Bernanke did not mention any form of further easing for the US economy in his testimony before Congress. Typically, US dollars go down in value when Dr. Bernanke and the Fed ease or flood the market with more dollars; the more dollars in the system, the lower the US dollar typically goes. 

Since Dr. Bernanke did not specify any form of easing for the dollar, US dollar prices spiked instead. 

Likewise, markets typically go down when dollars go up, as US dollars are seen as a safer means of exchange than stocks. The US dollar rise likely accounts for part of Thursday’s sell off of major markets.

Here are four ETFs you can trade to take advantage of US dollar movement:

PowerShares DB US Dollar Index Bullish ETF (UUP):

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PowerShares DB 3x Long US Dollar Futures Index ETN (UUPT):

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PowerShares DB US Dollar Index Bearish ETF (UDN):

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PowerShares DB 3x Short US Dollar Index Futures ETN (UDNT):

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Bottom line, the dollar and US dollar ETFs likely rose after Dr. Bernanke did not mention any ideas to continue easing the economy. Since lack of easing likely means fewer dollars in the system, dollar prices went up.

Keep in mind that whenever the Fed intervenes in the monetary system, US dollars typically sink and markets rally; the opposite was true this time because the Fed indicated indirectly that it will likely be less involved.

See related: Tradable Set-ups in 2 Dollar-Based Pairs

By John Nyaradi of ETFSectorSelector.com

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