Euro ETF Rally Could be for Real

The CurrencyShares Euro Currency Trust (NYSEArca: FXE) is up 4.2% over the past month and there could be more upside to come for the euro exchange traded fund as some market observers are forecasting a move higher for the common currency.

The U.S. dollar has previously been strengthening on the prospect of a tighter monetary policy, which would help remove some of the excess liquidity sloshing around in the economy. However, without the Fed’s support, the greenback looks less attractive.

Additionally, the weaker-than-expected economic data that revealed the U.S. services sector expanded at a slower pace month-over-month also weighed on expectations the Fed would hike rates again soon, which further pressured the USD.

“Amundi SA and Axa Investment Managers say the dollar’s strength will constrain the Federal Reserve’s ability to boost borrowing costs aggressively next year, after it raised rates this week for the first time in almost a decade. Strategists surveyed by Bloomberg forecast gains in the U.S. currency will slow to 3.4 percent against the euro in 2016,” according to Bloomberg.

With bets dwindling that the Federal Reserve will raise interest rates this year, the dollar’s upside could be muted while currency investors flock to the euro.