Look out below! The dollar is dropping...fast: Trader

What goes up must come down and that's exactly what one technician said is about to happen with the U.S. dollar index.

On CNBC's "Trading Nation" Wednesday, TradingAnalysis.com founder Todd Gordon said that recent comments from the Federal Reserve could send the greenback plummeting to levels not seen since November 2014.

"The Fed has become more dovish than expected and we're seeing the dollar sell-off," said Gordon. "I think the downtrend will sustain for a long period of time." The currency hit a five-month low Wednesday, one day after a news conference where Fed Chair Janet Yellen outlined the path of gradual interest rate hikes.

Read MoreWhy the Fed rate talk was 'a bunch of nonsense'

The selling pressure comes after a torrid run for the index, which rallied nearly 30 percent from May 2014 to March 2015. "We can see the dollar was in a beautiful uptrend from 2014 through the beginning of 2015, but since March we've gone sideways," said the CNBC contributor. For the last 12 months the dollar index has traded in a tight range, eking out a less than 1 percent gain. It's also tracking for its biggest quarterly fall in five years.

Looking at the UUP, the ETF that tracks the dollar index, Gordon noted that in order to find support on the chart one must look back to a double top that formed in 2012 and 2013. "That brings us down to about the $23 region on the ETF," he said. "That was resistance in 2012, 2013 and until we broke out in 2014, but now it will serve as both support and a target."

To play for a leg lower in the UUP, Gordon bought a put spread. Specifically, he purchased the September 24/23 put spread for 24 cents. This is a bearish strategy that targets the $23 support level Gordon noted, which represents a 6 percent move from around $24.50, where the UUP closed on Wednesday.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's Closing Bell (M-F, 3PM-5PM ET). In addition, he contributes to CNBC and CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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