The U.S. dollar staged dramatic back-to-back rallies on Wednesday and Thursday of this week. As the outlook for the U.S. economy continues to improve, money is flowing back into the dollar. A rising dollar has generally been bearish for stocks and commodities, so traders with significant exposure to risk assets may want to lighten up and take profits.
One place to consider putting some cash in the near-term is the PowerShares DB US Dollar Index Bullish ETF (UUP), which tracks the performance of the greenback versus a basket of foreign currencies. As has been the case with most of the pullbacks that have occurred in 2010, the likely next downside catalyst for global risk assets is another re-flaring of the sovereign debt crisis in Europe.
The EUR/USD cross is currently sitting at $1.2997, and penetrated the $1.30 level to the downside on Thursday. We could see another big leg down in the euro in the coming weeks, and this will benefit the dollar.
Jason Raznick is an editor of Benzinga.com.