Eric Dutram: Most investors have been focused in on stocks so far in 2013, and for good reason. The S&P 500 and broad U.S. market ETFs like (SPY) and (VOO) have jumped higher this year by more than 5.7% at time of writing, with many projecting more gains ahead as well.
However, beyond these solid performances, investors have seen another winning performance to start 2013, the U.S. dollar. This is pretty surprising as many times when the dollar is surging, U.S. stocks are floundering (read Can The Dollar ETF Breakout?).
This has not been the case so far in 2013 though, as investors have bought up dollars across the board. However, this time it wasn’t so much a flight to safety, but instead an exodus away from slumping currencies such as the yen (FXY) and the pound (FXB) .
This has been great news for ETF investors who have purchased the PowerShares DB US Dollar Index Bullish ETF (NYSEARCA:UUP) , as it has been a prime beneficiary of this trend, as it is basically offers up exposure against a basket of world currencies. These include key European currencies, as well as the yen and the Canadian dollar.
This basket has done quite poorly against the greenback so far in 2013, with the euro losing about 1% on the year, and then the pound and the yen both losing over 7.3% in the same time period. Since the basket of UUP is roughly 83% in these three aforementioned currencies (euro, yen, and pound), it is easy to see why the dollar ETF has been such a strong performer to start the year (see Japanese Yen ETFs: Any Hope in 2013?).
However, there is also reason to believe that this is just the beginning of the trend, and that more gains could be ahead for the dollar ETF in the future. That is because there have been some favorable trends in the charts, which have only added to some investors’ bullishness over the dollar ETF in the short term.
As you can see, we have just witnessed a moving average crossover for the dollar ETF. The short-term measure has now moved above the longer-term 200 day average, suggesting more bullishness in the near term if this holds (also read PIMCO Debuts Active Currency ETF).
This could be especially true if major world currencies like the yen and the pound continue to have problems, or if Europe has more political issues. If any of these situations happen, this could just be the beginning for dollar ETF investors, suggesting that this fund could be worth a closer look.