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Short Trade Idea on DB Dollar Index Bullish Fund UUP

01/04/2018 11:24 am EST

Focus: CURRENCIES

Landon Whaley

Editor, Gravitational Edge

Trade idea: As long as UUP trades below $24.52, then new short trade ideas can be initiated on rallies to $24.13, or higher. Depending on how much room you want this idea to move, use a risk price between $24.25 and $24.52, suggests Landon Whaley of Focus Market Trader.

The Powershares DB U.S. Dollar Index Bullish Fund (UUP) declined 99 basis points in the week ending December 29, and has declined 9.2% for the year.

UP’s Fundamental Gravity remains bullish as long as U.S. economic growth continues to accelerate. However, right now the real fundamental factor driving the greenback is the latest Fed rate hike, and that is bearish.

Quantitatively, UUP is all downside when the Fed raises rates. The U.S. dollar averaged a negative return in the six months following each of the last four Fed decisions to lift rates. In addition, a number of the quantitative factors we monitor for the U.S. dollar have also turned bearish. For instance, our WGR Momentum indicator peaked two weeks ago and has been falling ever since.

Behaviorally, investors are already hip to the bearish tone of the USD following a Fed rate hike, but the truth is they’ve been bearish for a while now. In fact, UUP has seen consistent outflows throughout the last year. In the futures markets, institutional investors have been extremely bearish on the greenback for months now, and remain so.

The bottom line is that all three Gravities are bearish for the greenback, and so is our bias.

Trade idea:

As long as UUP trades below $24.52, then new short trade ideas can be initiated on rallies to $24.13, or higher. Depending on how much room you want this trade idea to move, use a risk price between $24.25 and $24.52.

chart

Your risk price line in the sand is $24.52, if UUP touches that price, even for a second, then you should exit any open trades.

If the trade moves in your favor, then you could consider using the price range between $23.73 and $23.66 as your profit target.

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