Bullish USD Outlook

This sentiment is helped by the following factors:
1. Dropping commodities and gold as they are mostly priced in USD
2. The most important factor is: the shift of concerns from high inflation to slowing economic growth across the various central banks, i.e. ECB (European Central Bank), RBA (Reserve Bank of Australia), BOE (Bank of England)
3. The shift of concern causes those central banks to start holding interest rates for their currency with the strong possibility to cut rates soon (this is reflected in interest rate futures for AUD which is pointing to a 25 basis point cut in Oct 08 and another in Jan 09).

I have been monitoring the following 2 ETFs to understand the USD-buying interest:
1. PowerShares DB US Dollar Index Bullish Fund (AMEX:UUP) has market cap of ~USD 575 million (as of 12 August 2008), which represents 6x the interest in the bearish counterpart. As of the point of writing, the market cap has grown to ~USD697 million (a 20% increase in just 3 days*). Examining the chart of this ETF, this instrument had been consolidating for 4 months from mid-March till mid-July while testing low of ~USD22.30 at least 5 times. The resistance at USD23 and USD 23.30 has been broken to the upside. Future break out at ~USD 24 can test the next resistance at ~USD 25.
2. PowerShares DB US Dollar Index Bearish Fund (AMEX:UDN) has market cap of ~USD 95 million (as of 12 August 2008) and has dropped to ~USD 72 million (-24%) in just 3 days. Looking at the chart of this ETF, it has broken the support of ~USD 28.50 which is heading towards support of ~USD 27 and breaking this could test further support at the range of USD25.80 - 26.40.

One can argue that the increase/decrease in the market cap explained above is due to the changes in ETF prices. However, if we examine the absolute prices of the ETF in the same period as above, they're in the range of USD23.66 - USD24 (~1.4%) for the AMEX:UUP and USD27.00-28.09 (~4%). Clearly, the larger market cap movement represents new/lost substantial interest in respective ETFs.

However, there's still possibility that this sentiment can reverse, in my opinion:
1. Commodities stops dropping and starts rising again
2. Other central banks starts focusing on high inflation (due to point #1)

Conclusion:
Strong possibility of continued upside move of the USD against all major currencies.

PS: Invest at your own risk.

* I know that I need to monitor this over longer period of time. As I just started monitoring on 12th August 2008, only this information is available for me at the point of writing. This is intended to show the tremendous increase of the USD buying interest at this period.