Is The U.S. Dollar Setting Up For A Big Rally? (Chart Spotlight)

When we wrote in early March about the Power Shares DB U.S. Dollar Bullish ETF ($UUP) – the fund that tracks the U.S. Dollar Index – we believed that a lengthy corrective move had finished, and that price was ready to rally. Instead, price fell lower during subsequent weeks, aligning more closely with the alternate scenario that we suggested in the same article.

The alternate scenario was for price to find support near the target zone of 24.15 to 24.50, which we had identified somewhat earlier (and then set aside, because we thought the correction had finished).

In the updated weekly chart for UUP, you can see how price has responded to the target area by bouncing during the past two weeks. Adding to the bullish case is geometric support provided by the center line of a channel that has fit well during recent years.

U.S. Dollar Bullish ETF (UUP) – Weekly Chart

us dollar index etf uup bullish elliott wave rally setup_may 2016

We view the U.S. Dollar Index and UUP as tracing an impulsive, five-wave move up from the 2011 low. To keep that scenario alive, we really would not want to see price go much lower than it has done in recent weeks. Ideally it would build on the upward move of the past two weeks without looking back. The first near-term target in the bullish view would be the upper boundary of the channel, but that resistance should break eventually.

If the impulsive scenario keeps working, then targets for later in 2016 or 2017 should include the area near 26.90 and possibly the area near 27.70. Beyond that point, we would expect another lengthy period of consolidation before we will know whether the Dollar’s upward trend can continue into the next decade.

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No position in any of the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.


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