Equity markets worldwide have recently become adjoined once again with the daily gyrations of the Euro currency in terms of returns and volatility.
With this said, the Euro currency itself has been anything but stable thus far in 2012. CurrencyShares Euro (NYSEArca: FXE) dipped as low as $125.75 in mid-December of last year, only to climb as $134.26 (6.7% from trough to peak) by late February of 2012.
However, in just a little more than 3 month’s time, FXE has plunged to new lows, closing at $124.48 a share last Friday (7.3% decline from peak to current levels).
Institutions have been paying attention and are apparently concerned with prolonged weakness in the Euro, as levels of short interest in the currency via related derivatives including futures and options on the Euro have grown to 2007 levels according to a Bloomberg story this past weekend.
However, short interest bets were near current levels back in December of last year as well, and when the tide turned suddenly in the Euro, the massive short interest on the sidelines provided the fuel for a major 2 month reversal in the Euro as it suddenly gained in terms of valuation against other world currencies.
As May draws to a close, will we see a similar effect on the price of the Euro if indeed some “good news” ever comes out of Europe for a change, and will the shorts close their positions aggressively into any strength in the underlying currency?
It all remains to be seen, but there are a number of ETPs that allow portfolio managers to speculate, or hedge in either direction.
FXE is designed to track the change in the spot rate (EUR/USD) of the Euro versus the U.S. Dollar.
Almost conversely, PowerShares U.S. Dollar Index Bullish (NYSEArca: UUP), tends to move in the opposite direction as FXE, as the product is designed to replicate the performance of a long position in the U.S. Dollar versus a basket of currencies including the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona, and Swiss Franc.
For those looking for magnified exposure from the bearish and bullish side of the Euro, ProShares UltraShort Euro (NYSEArca: EUO) delivers 2 times the daily inverse returns of the EUR/USD spot rate.
Market Vectors Double Short Euro ETN (NYSEArca: DRR) is designed the same way only this product is in ETN and not ETF form.
For those looking to take the opposite side of the recent rally in the U.S. Dollar, PowerShares U.S. Dollar Index Bearish (NYSEArca: UDN) presents an ETF strategy in 1:1, unleveraged form.
For those looking to aggressively speculate or hedge, PowerShares 3x Long U.S. Dollar Index Futures ETN (NYSEArca: UUPT) and PowerShares 3X Short U.S. Dollar Index Futures ETN (NYSEArca: UDNT) exist for both the bulls and bears whom are looking to take sides here.