Down 4.6% year-to-date, the CurrencyShares Euro Currency Trust (NYSEArca: FXE) is one of 2016’s worst-performing currency exchange traded funds. Euro bulls should be careful if they are betting on better things for the common currency in 2017.
The European Central Bank (ECB) has been an issue for investors this year, but the ECB recently noted it will not taper its quantitative easing program, at least not in the near-term. Market observers argued that the ECB could even extend its bond purchasing program to further support inflation. The ECB has already spent over a trillion euros buying government bonds, cut its benchmark rate to zero and adopted a negative deposit rate.
Moreover, the U.S. dollar has morphed laggard to leader among developed market currencies, an ascent aided by the Federal Reserve boosting interest rates earlier this month. The PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP) is now one of this year’s top currency ETFs and more of the same is expected next year as the Fed could boost borrowing costs three or four times.
UUP tracks the price movement of the U.S. dollar against a basket of currencies, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.
If the 104 level on the EUR/USD pair does not hold, “there is almost nothing in the way to the 85-86 level. That is the lowest support level from the last 2 decades. We are not saying that the Euro will fall, with certainty, to 86 points,” reports ETF Daily News.
Euro weakness would benefit the ProShares UltraShort Euro (NYSEArca: EUO). Underscoring the euro’s prominence on the global currency stage and investors’ willingness to bet on weakness for the currency, EUO is one of the largest currency ETFs trading in the U.S. Another idea for euro bears to consider is the VanEck Vectors Double Short Euro ETN (NYSEArca: DRR).
“It is a bit too early to say what exactly will happen, but given the very strong dollar setup, the not so constructive setup of the Euro, and the money creation machine in the European HQ of the ECB, we believe there is a very fair chance that the Euro will break down in 2017,” adds ETF Daily News.
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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.