Trading Nation

The dollar is doing something it hasn’t done in more than 3 decades

Trader says dollar has found a low, here's how he's trading for a dollar bounce

Todd Gordon has seen something in the charts that will have dollar bulls rejoicing.

The founder says that the greenback has broken out of a downtrend that has been in place since the early '80s.

"Let's consider the longer-term trend of the dollar which has been significantly lower," he said Tuesday on CNBC's "Trading Nation." "In fact, since 1983 the dollar has been in a downtrend, and I think that's come to a close."

On a chart of the dollar index going back to 1983, Gordon points out every big rally and fall in the currency and then connects the peaks of each rally. Each peak over time has been lower, meaning the dollar has made lower highs every rally since 1983, creating the downtrend that Gordon sees.

But the recent bounce in the dollar shows that it has broken the downtrend line and is actually finding a key level of technical support around the 90.00 level.

"It looks like we're beginning to find a support shelf here in the overall dollar, and it looks like we could resume higher," he said.

And Gordon believes that the chart of the dollar-tracking ETF (UUP) also points to more upside. A big rally in 2014 took UUP through a resistance level around $23, which then served as a support level when UUP pulled back in 2017. The ETF bounced from that $23 level earlier this year, which leads Gordon to believe that not only can UUP retest its 2017 high near $27, it can even rally above it.

To play for a dollar breakout, Gordon wants to buy the September 24-strike call for 63 cents, or $63 per options contract. This means that Gordon believes UUP will close above $24.63 by September expiration.

The dollar hit a four-month high Tuesday, after posting its best month since November 2016.