Bearish Tidings for the Euro ETF

The CurrencyShares Euro Currency Trust (NYSEArca: FXE), for much of this year, was surprisingly strong and one of the better-performing developed market currency exchange traded funds. That theme has rapidly changed as FXE is lower by nearly 3% over the past month and now in the red on a year-to-date basis.

Most European market observers have been critical of European Central Bank President Mario Draghi’s stimulus measures. Specifically, many believe the measures have been too little too late, even after the ECB cut all three key rates this month and expanded quantitative easing.

Related: Brexit Opens Opportunity for Europe ETFs

While the ECB’s efforts to weaken the euro this year have not delivered on par with investors’ expectations, some market observers still believe the currency is heading for more downside. That does not mean the euro does not face more near-term downside, a scenario that could worsen for the common currency if the dollar rises in anticipation of higher interest rates in the U.S.

If the Fed hikes rates, the exchange value of the U.S. dollar will strengthen, or foreign currencies will depreciate relative to the greenback. Consequently, a non-hedged international investment will experience lower U.S. dollar-denominated returns.