Domestic equity indexes were fairly flat on Tuesday, although the bulls gave way in the final hours of trading as ongoing deficit woes stemming from both sides of the Atlantic ocean paved the way for profit taking. On the home front, the Fed left interest rates unchanged as expected, and the FOMC minutes revealed that some members are leaning towards additional stimulus measures, given the financially fragile global economic landscape. Unresolved Euro zone debt drama coupled with hints of another round of stimulus at home increased demand for safe haven assets. Gold prices staged an impressive comeback amidst the uncertainty, settling around $1,700 an ounce as the trading session drew to a close.
U.S. durable goods orders data for the month of October is slated to come out later today, and analysts are expecting for the figure to come in at -1.5%, versus the previous reading of -0.6%. This data release is largely considered to be a forward looking indicator of economic output, and equity markets may experience volatile trading depending on how investors digest this latest figure. Volatility in the currency markets may also follow, which makes the PowerShares DB USD Index Bullish (NYSEARCA:UUP) our ETF to watch for today.
From a long-term perspective (10 years), the U.S. dollar index has been in a perpetual downtrend, although recently it has stabilized, and even appreciated amidst the uncertainty [see For ETF Investors, Currency Exposure Matters]. When we consider the chart below, UUP appears to have bottomed out, at least in the near-term, right at the $21 level. This is a major support level, seeing as how this ETF held its head above $21 a share in early May of this year, on 6/7/2011, throughout August, and recently on 10/27/2011.
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It’s also worth nothing that this ETF has just recently climbed back over its 200-day moving average (yellow line), perhaps suggesting that a trend reversal may be developing [see also Three Long/Short Ideas For Euro Zone Debt Drama].
If the U.S. durable goods report comes in better-than-expected, investors’ confidence in the domestic economic recovery will likely improve, which may pave the way higher for equities, while putting downward pressure on the U.S. dollar. Likewise, UUP may encounter headwinds if investors’ reaction to the latest economic data release is a bullish one. In terms of downside, UUP may tumble down to support at the $21.50 level. On the other hand, if the durable goods report paints a gloomy outlook, uncertainty in the equity markets may very well pave the way higher for the U.S. dollar in the currency market. In terms of upside, UUP could jump to $22.25 a share, with major resistance coming in at the $22.50 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.
Disclosure: No positions at time of writing.
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