Here's How a Stronger Dollar Should Be Changing Your Investment Strategy

 

NEW YORK (TheStreet) -- There are a couple of ways to profit from the strengthening dollar, one of which is to simply buy it. Active investors looking for such exposure might consider the PowerShares DB US Dollar Bullish ETF (UUP) .

The European Union's move to lower rates last week and further easing in Japan have caused the dollar to break out of its multiyear downtrend. As you can see below, there is a strong technical setup for continued dollar strength (as shorter-term moving averages eclipse the longer-term) in a positive fashion:

UUP Chart

UUP data by YCharts

What changed? Well, since the beginning of the year both Europe and Japan have been losing their respective fights against deflation. Japan seems to have been deflating long enough to turn itself inside out. Nevertheless, the central banks for both regions have launched efforts to devalue their currencies (against the dollar). Why do this? There is no quicker way to make one's goods more attractive to the largest consuming nation, which also happens to use dollars.

Just six months ago we pointed out that the dollar looked to be weakening further and recommended buying commodities, via the PowerShares DB Commodity Tracking ETF (DBC) -- priced in dollars -- as a result. It looks like it may be time to concede defeat and fold our hand on this one, especially in taxable accounts in which the blow will be softened by a tax loss.

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