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U.S. Dollar Looking to Rebound as it Retests Support

U.S. Dollar Looking to Rebound as it Retests Support

Since early April, the U.S. dollar has largely been in a trading range against most major currencies. For many, the ability to understand how to track the dollar can be difficult. The strength of a currency is typically measured against another currency. Typically, the dollar is paired with the Euro as the Euro is the most widely held outside of the dollar. As a result, it is the most important relationship to monitor.

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  • The difficulty of trading these direct relationships between the dollar and an individual country’s currency is that it would require a forex account of the ability to trade futures. Luckily, there are ETFs that track the dollar against a basket of foreign currency. The Invesco DB US Dollar Index Bullish ETF (UUP) is a fund that accomplishes this. It carries a weighting of 57.6% to the Euro, and so a major consideration for forecasting direction fundamentally is based on the Euro.

    The price of UUP, as well as the EUR/USD, has been range-bound since the beginning of April. The range is between $26.75 to $27.25. As the price recently tested the support on Wednesday, the price began to rise on Thursday. The indication is that the price is establishing support and will move higher to resistance.

    The $0.50 range is obviously a little small, but the near-term potential could cause the price to extend toward the March high near $44. However, you can use leveraged ETFs and ETNs to make more money with a small move in the price.

    The VelocityShares Daily 4x Long USD vs EUR ETN (DEUR) is a way to do this. The 4x daily leverage is a means that it won’t track perfectly, but for short-term holding periods it will come pretty close. For DEUR, you’re going short the Euro and long the USD. The near-term target is $40.50.

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