ECB Expectations Bolster Dollar ETFs’ Appeal
June 2nd, 2014 at 3:01pm by Max Chen
As currency traders anticipate additional Eurozone monetary easing this week, U.S. dollar exchange traded funds are strengthening as the U.S. dollar index ascends to a two-month high.
The PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP) was up 0.3% Monday. UUP is down 0.2% year-to-date.
Traders are focused on the European Central Bank policy meeting Thursday and U.S. payroll May numbers due Friday, reports Daniel Bases for Reuters.
“The euro has been trading on the softer side in general as we go into the ECB meeting as there is some level of caution here,” Alan Ruskin, global head of G19 currency strategy at Deutsche Bank, said in the article. “Plenty of speculation that they don’t deliver enough monetary easing or that they deliver, but it is already priced in we fall into a ‘buy the rumor sell the fact’ scenario.”
ECB easing would depreciate the euro currency relative to the U.S. dollar.
“Soft inflation now reinforces the point of view that the ECB will remain dovish and remain ready to ease policy in the future,” Vassili Serebriakov, currency strategist at BNP Paribas, said in the article. “That’s negative for the euro.”
The U.S. dollar swung Monday after the ISM corrected its May manufacturing index for the second time to a higher-than-expected 55.4 from 54.9 in April, reports Carlos Torres for Bloomberg.
Dollar bulls are also jumping on the greenback as the U.S. dollar index broke through its 80.59 key resistance level, according to Kitco News. The index is now hovering around 80.63.
Technical analysts argue that momentum could pick up after breaching the resistance level, with a new target of around 81.32 to 81.38, or another 0.8% increase from current levels.
The PowerShares DB U.S. Dollar Index Bullish Fund tracks the price movement of the U.S. dollar against a basket of currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. [Dollar ETFs Ready to Rally]
Additionally, investors can take a look at an actively managed option, WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEArca: USDU), which tracks the USD against developed and emerging market currencies. USDU is up 0.5% Monday, but the fund is down 1.6% year-to-date. [ETFs for the end of ZIRP]
Additionally, for the more aggressive trader, the PowerShares DB 3x Long US Dollar Index Futures ETN (NYSEArca: UUPT) provides a leveraged 300% bullish monthly return to the U.S. dollar futures index. UUPT is up 5.2% Monday and down 3.3% year-to-date.
PowerShares DB U.S. Dollar Index Bullish Fund
For more information on the greenback, visit our U.S. dollar category.