Betting Against the Dollar With UDN
The greenback appears vulnerable to a BRICS currency, and a bearish ETF grabs assets.
Is the dollar’s status as the world’s most important currency, the one held in reserve by most global central banks, under threat?
That of course has been speculated upon for years. Still, investors in the Invesco DB U.S. Dollar Index Bearish Fund (UDN) are at the very least detecting some wobbles as money flows into the exchange-traded fund that bets against the dollar.
The U.S. dollar index, which measures the greenback against other reserve currencies like the euro, yen and pound, is declining after rising to a two-decade high in March 2022.
Reserve currencies issued by stable governments are freely convertible, supporting cross-border transactions and reserve holdings by central banks, monetary authorities, governments and supranational institutions. At the end of World War II, the U.S dollar replaced the British pound as the leading reserve currency.
Rally and Correction
The dollar index futures contract reached a two-decade high in September 2022.
Source: Barchart
The long-term chart highlights the most recent 114.745 peak in the dollar index, the highest level since 2002, when it ran out of upside steam. The index dropped to 100.42 in April 2023.
Geopolitics, Economics Weigh on Index
The handshake between Chinese President Xi and Russian President Putin in February 2022 on a massive trade deal and “no limits” alliance was a watershed event. Less than one month later, Russia invaded Ukraine, launching the first major war on European soil since World War II. The U.S. and its allies consider Ukraine an Eastern European sovereign country, while Russia believes it is a Western Russian territory.
In Asia, China has not been shy about its reunification plans for Taiwan, another country the U.S. and its allies believe is a sovereign nation.
The bottom line is the event over the past year created a bifurcation of the world’s nuclear powers, with a far-ranging impact on trade and world peace.
At first, the Russian invasion caused a buying spree in the dollar index as a flight-to-quality for the world’s reserve currency. However, since September, a Chinese-Russian-led trend toward nondollarization has likely weighed on the U.S. currency. An April 24 Foreign Policy article was headlined “A BRICS currency could shake the dollar’s dominance.”
Psychological Barrier
While the 100 level is not a critical technical support area on the long-term chart, it has psychological significance. The June dollar index futures have yet to test the 100 level and were near 102.50 on May 19, not far above the April low.
Source: Barchart
The 20-year chart illustrates the bullish trend of higher lows and higher highs in the U.S. dollar index since the 2008 71.05 low. While the 100 level holds no technical significance, critical support is at the January 2021 89.165 low. A decline below the psychological 100 level could cause selling to increase and challenge the early 2021 crucial level.
Dollar Index Slips, UDN Rallies
UDN moves contrary to the dollar index. At $18.73 on May 19, UDN had $93.14 million in assets under management. UDN trades an average of 165,162 shares daily and charges a 0.77% management fee.
The dollar index fell 12.5% from 114.745 in September 2022 to the most recent April 2023 100.42 low.

Source: etf.com
The chart shows UDN’s 14% rise from $16.75 to $19.11 per share as the inverse dollar index ETF did an excellent job tracking the index on the downside.
Flows Favoring UDN
The etf.com Fund Flows tool shows increased interest in UDN since the end of 1Q:
Source: etf.com
As the Fund Flow tool indicates, $14.19 million has flowed into UDN since March 30, 2023, a considerable percentage of the $93.14 million assets under management.
The trend in the dollar remains bearish since it failed at the September 2022 high. Moreover, the fundamentals are bearish if a BRICS currency threatens or weighs on the dollar’s position as the world’s reserve currency. A test of the critical 89.165 level, 13.4% below the 103 level on May 19, would propel UDN higher.