UUP continues to trade lower after US growth data

Crude oil, SPY, UUP, and gold ETFs react after US growth data (Part 2 of 5)

(Continued from Part 1)

US Dollar Index

The US Dollar Index fell after the US commerce department reported US economic growth data. The US economy grew by 2.6% in 4Q14 compared to 5% in 3Q14, which was below the estimates of 3% growth. As a result, the US dollar index fell against the basket of currencies. The measure of the US dollar’s price movement against a basket of currencies like the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc is called USDX.

UUP ETF

The PowerShares DB US Dollar Index Bullish ETF (UUP) consists of long US Dollar Index or USDX futures contracts. The UUP ETF replicates the price movements of the US Dollar Index. The UUP ETF fell from 25.15 on January 30 ,  2015, to 24.79 on February 3.

The drop in UUP ETF and US Dollar Index was also due to the low manufacturing activity by the US in the last 11 months. The US dollar also fell against the euro on the signals that Greece’s new government was able to negotiate with its creditors for easing the terms on huge debt.

The Institute for Supply Management reported that the US Purchasing Managers’ Index (or PMI) fell to 53.5 in January 2015 compared to 55.5 in December 2015. PMI fell below the industry estimates of 54.5 for January 2015.

A rise in PMI above 50 indicates the economy is expanding and a fall below 50 indicates the economy is contracting month-over-month. The fall in UUP ETF and weak dollar supports commodities prices like gold and crude oil. These commodities are dollar denominated, so a weak dollar will make these commodities cheaper, which impacts oil ETFs and gold ETFs like the United States Oil ETF (USO), the PowerShares DB Oil ETF (DBO), the Market Vectors Gold Miners ETF (GDX), and the Market Vectors Junior Gold Miners (GDXJ).

The US Dollar Index and UUP ETF are trading at key support levels. However, the long-term outlook for the US dollar remains bullish. The Relative Strength Index (or RSI) has been in the overbought territory for a long time and is trending lower. This suggests prices could correct. The moving average convergence divergence (or MACD) is trending downwards. MACD above the zero line projects upward price movement, while below the zero line projects downward price movement.

In the next part of this series, we’ll provide a chart analysis update for the SPY ETF.

Continue to Part 3

Browse this series on Market Realist:

  • Part 1 – Crude oil declines after rallying ~22%
  • Part 3 – SPY ETF rebounds after losing on US growth data
  • Part 4 – SPDR Gold Trust ETF trades in a narrow range