The PowerShares DB US Dollar Index Bullish ETF (UUP) gains

Crude oil, SPY, UUP, and gold ETFs react to the FOMC and US dollar (Part 3 of 5)

(Continued from Part 2)

PowerShares DB US Dollar Index Bullish ETF (UUP)

The PowerShares DB US Dollar Index Bullish ETF (UUP) consists of long US dollar index or USDX futures contracts. 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. The UUP ETF replicates the price movements of the US dollar index. It has assets worth $ 1,042 million and has an average volume of 1.7 million shares.

The US dollar index gained on January 29, 2015, after the Federal Open Market Committee (or FOMC) said that it would keep interest rates on hold until mid-2015. Then, it should increase interest rates based on improving economic conditions and a strong labor market. However, the FOMC was more concerned about the weakening European economy.

The US dollar index started declining after hitting an 11-year high against the basket of currencies on January 27   due to consensus on a disappointing future outlook for major US companies like Microsoft (MSFT), Dupont (DD), Procter & Gamble (PG), and Pfizer (PFE).

The US dollar also dropped ahead of the two-day Federal Open Market Committee (or FOMC) meeting on January 27 and 28. Weakness in wage growth and lower inflation due to low oil prices raises concerns about the FOMC holding firm to its policy decisions. Analysts anticipated that the FOMC would be more patient towards raising interest rates in the medium term. However, Europe quantitative easing and uncertainty surrounding Greece following its elections have been positive for the US dollar.

Gold ETFs

The US dollar index was trading at 94.79 as of January 29 , 2015. The UUP ETF’s price movement also replicated USDX movement. It was trading at $ 25.13 levels on January 29. The rise in the US dollar directly affects crude oil and gold prices. The commodities are dollar-denominated, and any rise in the dollar makes them expensive. So, a rising dollar exerts downward pressure on crude oil and gold prices.

You’ll find technical analysis updates for gold ETFs in the next part of this series.

Continue to Part 4

Browse this series on Market Realist:

  • Part 1 – Crude oil slips to $ 43.81 after inventory data and oil glut
  • Part 2 – SPY rallies in the afternoon and closes higher at 2,021
  • Part 4 – Gold (GLD) trades lower on the FOMC meeting and stronger dollar

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