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Dollar Breakout Could Foreshadow a Return to Risk-Off

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The Dollar Bullish ETF (UUP) extended its advance with a break above the mid November high this week and a fresh six month high. UUP is at levels not seen since August 2012 and this surge could weigh on stocks because the Dollar and stock market have been negatively correlated the last three years. A rising Dollar could also signal a return to a risk-off environment. On the chart below, it looks like UUP formed a higher low around 21.50 and the February breakout signals a continuation of an uptrend that has been in place since August 2011. The yellow area marks the next target zone in the 23.50 area. The upper trend line of the rising channel and the 50-62% retracements were used for this target. 

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Click these images for live charts.

Watch the Euro for clues because it accounts for around 57% of the US Dollar Index and the Dollar Bullish ETF. The second chart shows the Euro Trust (FXE) breaking the July trend line and piercing support from the January low. This breakdown signals a continuation of the prior decline (May 2011 to July 2012), and the next support zone resides in the 118-120 area. The indicator window confirms the breakdown as StochRSI broke below its November low and below .40 for the first time since July.

Good trading!
--Arthur Hill CMT

Arthur Hill
About the author: , CMT, is the Chief Technical Strategist at TrendInvestorPro.com. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London. Learn More
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