Stock Trading - UUP (US Dollar Index Bullish) is a buy for Conservative Investors

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Sep 29, 2010,  UUP (PowerShares DB US Dollar Index Bullish)  ETF closed today at 22.84 and the price looks attractive to buy as there is too much of pessimism towards US$and the greenback is set to rally significantly from oversold condition. This is not a volatile stock as it may not have any wild swing and good play for conservative investors.

Due to the expectation of increasing inflation in US, people are dumping the dollars and move on to other currencies. As of now, do we have inflation so far in the past two years? No. USA has only deflation in the last two years. From August 2008 to August 2010, the inflation rate is Negative (!) -0.35%, that represents only deflation.

Then why people are dumping dollars? Because of the Fed announcement on Quantitative Easing (QE) leads to think that will increase inflation in USA. But the contrary statement is true. Market moves in the direction by expecting that US inflation will surge. Even if it surges, the USD is fully priced in for that compared other currencies. Fed will apply QE based on need. Already 30 year treasury is at record low. If people are dumping long dated treasuries, then it might apply QE.

Another fact why people are dumping dollar is as it yields very low compared to other currencies. Increasing inflation will also push up the interest rate on that currency.

USD is going to surge like anything by surprising many people because of increased negative divergence. This would happen very soon than later.

The ETF UUP can yield over 5% to 8% in the medium term less than 3-6 months.