After a rough first half of the year, the U.S. dollar is starting to show signs of bottoming on the heels of a strong U.S jobs report and improving economic data.

In July, the economy added 209,000 jobs as the unemployment rate dropped to 4.3%. But the bigger piece of news was that wage growth saw its biggest month-over-month gain since October. On the heels of those strong numbers, and other signs the economy is strong, the dollar rose off a one-year low.

One way to trade the dollar is by using the PowerShares DB US Dollar Index Bullish ETF (UUP), which provides inverse exposure to an index of USDX​ futures contracts that rises in value as the dollar appreciates relative to a basket of world currencies. After being beaten down for the first half of the year, there are signs that a bottom might be in place for the UUP and that it might retrace some of its losses.

Chart source: TradingView     

UUP's chart is showing a couple bullish technical signals. First, the Moving Average Convergence Divergence (MACD), which measures the direction of the momentum in a stock, had a bullish reversal indicating a new uptrend. Second, the UUP found support at $24, which is the exact low of 2016. This can be considered a double bottom and now makes the $24 level very strong support given that it has held this level twice on a long-term time frame.

Looking ahead to a potential bounce, using Fibonacci Retracements can be helpful in spotting targets and resistance level. The first test of the UUP bounce will be $25. This represents a 38.2% retracement of the sell-off from the start of the year. The next target would be $25.37 which is the 50% retracement of the move. Should the UUP get to this level, how the ETF reacts at these levels will be a good indication as to whether the bounce was short-term in a new long-term downtrend, or if the bounce represented a change in the long-term direction of the dollar. For the time being, using $24 as a pivot point looks to be the smartest approach to trading the dollar. Should the UUP break below $24, then the downtrend should continue and the bounce on Friday would become irrelevant.

The Bottom Line

The U.S Dollar, represented by UUP, had a strong bounce back Friday afternoon after better-than-expected July jobs numbers. After suffering major losses all throughout the year, the greenback potentially looks primed for a move back up. The $24 level on the UUP acts as a major pivot point, because above it, a bounce seems likely given an emerging positive technical backdrop.

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