PowerShares Dollar Fund (UUP), U.S. Dollar Index Runs Into a Likely Ceiling

The PowerShares DB US Dollar Index Bullish Fund (NYSE: UUP), along with the U.S. Dollar Index (UDX), both rallied sharply on Friday....perhaps a little too well, in fact. The approximate 0.4% move higher from each one carried both the ETF as well as the index to levels where downside reversals are now very likely.

The PowerShares DB US Dollar Index Bullish Fund found its 38.2% Fibonacci retracement line at $23.80, versus the high of 23.77 from UUP today - which is close enough to call a match. The U.S. Dollar Index ran slightly past its 38.2% Fib line at 79.86 by reaching 80.02.

Either way, what appears superficially to be positive momentum may actually be a proverbial 'last hurrah'. Between the spike in volume for the ETF (volume spikes often end up serving as pivot points) and the fact that both are overbought and overextended now, the near-term path of least resistance for UUP as well as the Dollar Index is a move lower to bleed off some of this tension.

This has implications for currency traders as well as any investor of companies with a significant number of overseas business.

That said, reversals at Fibonacci lines don't necessarily have to set up big moves. This may just be the beginning of a pause or a mild pullback, if anything at all. The odds simply suggest a short-term reversal here.