With market volumes lacking this week going into the New Year’s holiday and another shortened week of trading beginning next Tuesday, we find the heightened activity in U.S. dollar and euro exchange traded funds on Wednesday quite notable.
EUO (ProShares UltraShort Euro) closed at its highest level since January of this year on slightly above average trading volume (4.3 million shares) after 7 sessions of tepid volume. EUO is designed to provide 2 times the daily inverse return of the euro versus the U.S. dollar. [Euro Breaks $1.30]
FXE (CurrencyShares Euro) likewise plunged to recent lows, challenging the $128.15 a share intraday low that was registered in January of this year, and we have also seen bullish looking flows in UUP (PowerShares US Dollar Index Bullish) for at least the past month.
UUP has followed a volatile path this month, trading as low as $21.97 a share at the beginning of this month, surging to $22.70 mid-month, and closing at $22.55 yesterday. Despite the relative strength and weakness versus the euro during the month of December in UUP and thus the U.S. dollar, we have seen steady and consistent call buyers in UUP for at least the past month.
It seems that options players are posturing for a stronger U.S. dollar, and thus a weaker euro, not only according to UUP options flows, but we continue to see put buyers in FXE as well as call buyers in EUO, which is basically the same sentiments expressed as those by the UUP call buyers.
UUP traded huge volumes yesterday, and again we emphasize the slow nature of this holiday week and the fact that overall volumes in the marketplace have been substantially light in recent sessions. We also pointed out large inflows via creations in UUP last week in our weekly recap. [Investors Favor Stock and Dollar ETFs, Sell Gold]
For those ETF investors looking to capitalize on the recent volatility in the U.S. dollar and euro, there are other alternatives in the space outside of the aforementioned funds.
UDN (PowerShares U.S. Dollar Index Bearish) provides the inverse returns to the U.S. dollar versus a basket of other currencies, and may be a potential play for those whom are taking the stance that the recent dollar rally is overdone.
Similarly, UDNT (PowerShares DB 3X Short U.S. Dollar Index) provides 3 times the inverse returns of the dollar versus a basket of major world currencies, and UUPT (PowerShares DB 3X Long U.S. Dollar Index) would provide leverage to those believing that the recent dollar surge will continue.
DRR (Market Vectors Double Short Euro ETN) is another potential alternative for those looking for exposure to a weakening euro. For those looking to take the other side of both the recent euro sell-off/U.S. dollar rally, ULE (ProShares Ultra Euro) may also have some appeal. The ETF delivers 2 times the daily returns of the euro versus the U.S. dollar.
Additionally, URR (Market Vectors Double Long Euro ETN) also delivers 2 times the daily returns. With the European situation not going anywhere anytime soon, we will likely continue to see heavy activity in U.S. dollar and euro linked ETF/ETN products in early 2012.
PowerShares US Dollar Index Bullish
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