How to Play a Strengthening Dollar – UUP

Active investors have taken note of the wicked commodity sell off over the past week. Perhaps what they have missed is the impact of the U.S. Dollar’s value to commodity related investments.

The one-way ticket to large returns in oil and precious metals over the past year has been tied to a declining U.S. Dollar. You can chart gold or crude oil against the greenback, and you will see an inverse relationship.

However, the trend may have run its course as many investors were caught on the wrong side of this trade last week. Suddenly and without warning, commodities sold off dramatically and the U.S. Dollar rallied. The question for investors is, other than by covering your commodity-related longs, how do you participate in a Dollar rally?

We found an answer. UUP — officially known as PowerShares US Dollar Index Bullish Fund. Interestingly, when searching for dollar related investments, I discovered many short dollar ideas, but not as many pure play long dollar ideas. What might that tell us?

If you think the short-term move has some legs, UUP gives you exposure to a bouncing dollar. The bond market in the U.S. got killed today as money rotated into equities. Overseas investors may realize the tide has turned and there may be even more demand for the U.S. Dollar as the stampede into equities continues. UUP is poised to appreciate as the flow of funds and sector rotation continues. Good luck.