Amid heightened tensions in Eastern Europe and some concerning economic data out of Germany, the Eurozone’s largest economy, Europe exchange traded funds have been pulling back in recent weeks.

The FTSE 100, the U.K.’s benchmark index, is trading at six-month lows while France’s CAC 40 has dipped almost 5% in just the past month. Germany’s DAX dipped 2.3% last week after German factory orders fell the most in three years and Italy, the Eurozone’s fourth-largest economy, is in the midst of another recession.

Those factors and others are taking a toll on Europe ETFs, such as the iShares MSCI EMU ETF (NYSEArca: EZU). Technical signs are appearing that indicate EZU could be poised for more downside.

“Violation of this 2- year uptrend line has indicated that this rally is running out of steam. The current convergence of the 10 and 30-week moving averages is now alluding to a battle shaping up between the bulls and the bears. Note how the last crossing took place in Sep. 2012, setting the stage for rally to come,” said J. Beck Investments in reference to the EZU chart below.

Chart Courtesy: J. Beck Investments

Putting EZU’s weakness in fundamental terms is not difficult. France and Germany combine for over 61% of the ETF’s weight. Italy chimes in at 7.6%. Add Italy and Spain’s weights in EZU and the number is 19.2%, which is problematic at a time of weakness for PIIGS equities. [France ETF Could Lag Europe Rivals]

Weakness in the volatile PIIGS equity markets is sapping EZU’s relative strength.

“It is also interesting how the relative strength breakdown was an early indication of the price weakness to follow,” notes J. Beck.

Investors have not been shy about pulling capital from EZU. The ETF saw redemptions of $921.4 million last week. The ETF has lost $1.6 billion this quarter, but EZU is far from the only Europe ETF investors are departing.

The Vanguard FTSE Europe ETF (NYSEArca: VGK) has lost nearly $787 million this quarter. VGK and EZU are down 7% and 9% in the current quarter, respectively. [Some Europe ETFs Resist Outflows]



ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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