Where Does Limp ECB Stimulus Leave Euro ETF?

The Eurozone currency and euro-related exchange traded funds surged Thursday after the European Central Bank disheartened markets with bare-bone stimulus measures and triggered a short squeeze.

The CurrencyShares Euro Currency Trust (NYSEArca: FXE) rose 2.8% Thursday, with the euro currency up 2.8% to $1.0915 mid-day.

Meanwhile, the leveraged long euro ETFs ProShares Ultra Euro (NYSEArca: ULE) and Market Vectors Double Long Euro ETN (NYSEArca: URR), which both take the 2x or 200% performance of the USD price of the euro, increased 5.5% and 6.8%, respectively, on Thursday.

The euro currency strengthened Thursday after the lighter-than-expected ECB stimulus package disappointed market expectations. The central bank extended quantitative easing by six months until March 2017 at the current rate of 60 billion euros per month and reduced its deposit rate by 10 basis points to minus 0.3%, Bloomberg reports.

“The expectations were too high, and this was the minimum he could do,” Marco Valli, chief euro-area economist at UniCredit SpA, told Bloomberg. “I think this was a mix of Draghi being held back by the conservatives, but also him wanting to keep some powder dry in case more is needed.”

Prior to the Thursday announcement, currency traders were large bearish on the euro currency. For instance, one trader on Wednesday bought 52,000 $28 call options, or roughly a $5 million bet, in the ProShares UltraShort Euro (NYSEArca: EUO), which provides -2x or 200% of the inverse return of the U.S. dollar price of the euro on a daily basis, reports Chris Dieterich for Barron’s.

EUO would gain when the euro falls, so “call buying on the ETF expresses a bearish sentiment on the euro,” Alison Edwards at Susquehanna Financial Group, said in a note.