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Dollar Peak Appear To Be In. Time To Short UUP

Harrison Schwartz profile picture
Harrison Schwartz


  • The U.S dollar index is dropping with stocks due to the significant increase in Coronavirus concerns.
  • A likely drop in U.S rates will cause real-interest to decline below -1%.
  • The U.S dollar and U.S equities have become increasingly correlated, signaling a drop in the dollar is bearish for equities.
  • The current setup appears to make for a strong short opportunity in the dollar index.

One of the major trends facing markets over the past decade has been the strong U.S dollar. Due to either excessively low-interest rates or high inflation, international currencies have been depreciating. The problem has been so jarring that it has led to the collapse of numerous emerging market currencies weighed down by excessive U.S dollar-denominated external debt.

The strong dollar has been generally bearish for commodities and because overseas investors want to gain exposure to it, bullish for U.S stocks and bonds as means of gaining said exposure. This strength has even allowed the U.S Federal Reserve to print currency and effectively fund the fiscal deficit without causing depreciation. Put simply, if you want to know where stocks, bonds, and commodities are going, watch the dollar.

The main factors that have benefited the dollar lie in its transition into safe-haven status, largely replacing the Japanese Yen. This has been through low-to-moderate inflation and generally higher interest rates compared to other countries. Further, the U.S's large trade deficit and high international debt financing have allowed for greater internationalization.

As I'll show, these bullish factors are quickly turning into bearish ones. The Dollar has been at its long-term resistance for about six months and has been unable to break new highs. Indeed, there may be a great short-setup for the Invesco Dollar ETF (NYSEARCA:UUP).

A Closer Look at UUP

Invesco's UUP ETF tracks an index of other developed currencies including the Euro, Japanese Yen, British Pound, Canadian Dollar, and Swedish Krona. The fund allows investors who do not trade FX or futures directly to easily gain exposure to the FX market.

The fund has an AUM of $303M making it the most liquid dollar ETF and has options and short selling. Its short borrowing fee has dropped in recent months but is still slightly

This article was written by

Harrison Schwartz profile picture
Harrison is a financial analyst who has been writing on Seeking Alpha since 2018 and has closely followed the market for over a decade. He has professional experience in the private equity, real estate, and economic research industry. Harrison also has an academic background in financial econometrics, economic forecasting, and global monetary economics.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a short position in UUP over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (5)

Trevor Soare profile picture
the supposedly correlated sp500 and DXY graphs you showed were almost perfectly inverse. I dont know what you're talking about.
The coronavirus is deflationary in everything except staples that are both finished and imported (into the US). Commodities are deflationary. So are cars. So are iphones. If people are forced to stay at home, they will consume little (mainly food, toiletries, pharaceuticals, etc.). Everything else goes on hiatus for 6-9 months.
AgainstTheDollar profile picture
This is not the time to short the dollar, as a perma dollar-bear, it's time to hold what you have and buy net-short dollar equities (foreign) and gold/copper/etc miners.

The upcoming few months very well could be a bloodbath if you're simply short dollars due to many crosswinds, although in the long-term, or even medium-term, I'm still definitely bearish.

Adding to low-cost Miners (all varieties), Chilean & Argentinian stocks (Utilities, Real Estate, Bottlers/Light-Industrial), a little to international-ETF's (Egypt, Africa, Thai, and some others), and a little in US-REIT's.

Definitely not adding short-dollar directly though, as before collapse/inflation/decoupling you'll probably get a liquidity lock-up, an extreme flight into US-bonds, and extreme volatility in bonds, not to mention the upside is relatively limited shorting bonds and you'll hit a net-loss despite capital gains if you hold too long.
Mumstraf profile picture
Have you looked at shorting long term bond ETFs as part of this change?
mr charles profile picture
Good article...the market looks Bearish....but there is a Bull market somewhere...
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