Down 7.3% year-to-date, the CurrencyShares Euro Currency Trust (NYSEArca: FXE) is one of 2014’s worst-performing developed market currency exchange traded funds.
In most years, even periods of euro weakness, October would be the time currency traders would consider being long the euro because of the common’s currency favorable late-year seasonal trends. However, that favorable seasonality will be put to the test this year. [Monitor These Currency ETFs]
“In the short fifteen year history of the euro currency, the market seems to make a bottom around the third week of October; then we see a tendency for price gains against the U.S. dollar by yearend. Many factors could be at play to explain this, such as multi-conglomerate U.S. corporations’ need to make fiscal year-end book adjustments as well as to make foreign payroll and bonuses,” write Christopher Mistal and Jeffrey Hirsch for the Stock Trader’s Almanac.
Trading around seasonal trends can prove effective as long as traders combine seasonality with other indicators. And while FXE is fast-approaching its ninth anniversary, indicating there is a sufficient track record of late-year seasonality to measure, other factors need to be considered before investors dive into the euro as a yearend trade.
Important factors to consider not only the looming end of the Federal Reserve’s quantitative easing program, which is rewarding the U.S. dollar, but also when previous rounds of QE started. The first round of QE was announced in late November 2008, in the heart of favorable euro seasonality. [Investors are Flocking to Dollar ETFs]