European assets, including the euro, rallied in anticipation of the French presidential election. Markets got the desired result, prompting some currency traders to speculate that the euro and the CurrencyShares Euro Currency Trust (NYSEArca: FXE) could be due to retreat.
However, FXE is up almost 2% over just the past week, underscoring the point that the euro is one of this year’s best-performing developed market currencies. FXE resides more than 3% above its 50-day moving average and more than 2% above its 200-day line. Additionally, the euro ETF is just 3% below its 52-week high.
The Eurozone macroeconomic environment has steadily improved, with a significant uptick in manufacturing and services PMIs over the end of 2016. Eurozone growth may continue to pick up speed ahead after the European Central Bank revealed increased loan demand and easing of terms and conditions on new loans to help stimulate the economy.
“The low for the currency in March 2017 was – just south of 1.05. And the interesting thing is that, during the 2 years of the Euro going nowhere, the Commercial Hedgers have unwound their entire record net long position of 274,000 contracts. That is like burning through an entire tank of gas while driving your car on cement blocks,” according to ETF Daily News.
The European Central Bank has been implementing a loose monetary policy that dragged yields down to record lows. Consequently, dividend-paying European stocks and related exchange traded funds (ETFs) may strengthen as more investors turn to riskier assets.
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). Predictably, those ETFs have been stymied by the euro’s surprise ascent.
“Hedgers have actually moved to a net short position in Euro futures for the first time since that May 2014 top,” reports ETF Daily News. “With that said, the Euro has gained some key technical ground over the past few days. Could the currency finally be launching its long-overdue rally. Or will the spent fuel in the futures market turn into a headwind for the currency?
For more information on hedged options, visit our currency hedged ETFs category.