Believe It: Currency ETFs Offer Upside

At the very least, downside appears limited for the CurrencyShares Euro Currency Trust (NYSEArca: FXE). After being one of the worst-performing developed market currency exchange traded funds over the past two years, FXE is roaring back with a year-to-date gain of nearly 4%.

The combination of the weaker U.S. dollar and global investors’ tepid reaction to monetary easing efforts by the European Central Bank (ECB) are among the catalysts boosting FXE.

Coming into this year, some market observers predicted the euro would not weaken against the U.S. dollar as much as was seen in the previous two years. 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.

Related: Currency Hedged ETFs Offer a Smoother Long-Term Ride

Now, some major banks are adjusting previously bearish euro forecasts as the common currency remains solid and the dollar continues floundering.

Goldman Sachs “joined Deutsche Bank AG this week in scrapping forecasts for the common currency to slump to $1 or below in 2016, citing changed outlooks for central-bank policy. Goldman Sachs sees the euro trading at $1.05 in 12 months, up from 95 cents forecast previously, analysts led by Robin Brooks, the bank’s chief currency strategist, wrote in a note on Friday. A day earlier, Deutsche Bank, the world’s second biggest currency trader according to Euromoney magazine, raised its year-end prediction to $1.05 from $1,” according to Bloomberg.


ECB President Mario Draghi has previously signaled that the ECB could expand its quantitative-easing program to bolster growth and bring inflation back up, stating that the return of inflation to target is more important than the impact of ultra-low rates.