As Selling Pressure Subsides, Give the Euro a Second Look

Exchange traded fund (ETF) investors looking for a bounce-back play may want to give the euro another look as selling pressure from Omicron subsides.

As news of the Omicron variant circulated globally, Europe was quick to re-institute lockdown measures in order to prevent the virus from spreading. This was particularly aimed at un-vaccinated individuals, as in the case of Germany where such individuals were only allowed ingress to businesses for essential purposes, such as trips to supermarkets and pharmacies.

The re-installment of stricter regulations did no favors for the euro, but it appears that the sell-off pressure could be waning.

“The Euro to Dollar exchange rate was little changed for the week in the final session of trading and with selling pressure having ebbed it could now be set for a period of consolidation within a narrow range, according to some strategists,” PoundSterling Live reports. “Europe’s single currency had clung onto the recently recovered 1.13 handle throughout much of the week by Friday in what may be a sign of a tentative bottom being in place following almost a year of staggered declines that have pulled the Euro lower from near 1.23 back in January.”

Nonetheless, investors should tread lightly when it comes to the euro. Overall, they might be better off in other safe havens like bonds or gold.

“EUR/USD is sitting exactly in the middle of what could prove a multi-week 1.1180-1.1380 trading range – bordered by Omicron and Fed news. While a strong nonfarm payrolls report today could see the lower end of that range tested, investors may be reluctant to chase the move too much lower for fear of some more damaging Omicron news,” says Chris Turner, global head of markets and regional head of research for U.K. & CEE at ING.

“In the meantime, news of further lockdowns across continental Europe hardly proffers the euro as a safe haven currency of choice and one suspects that EUR/JPY stays under pressure,” Turner and colleagues wrote in a research note on Friday.

One ETF to Play the Euro Bounce

An exchange traded fund (ETF) might be able to mute the volatility of directly trading the euro on the foreign exchange (forex) market. One such fund is the Invesco Currency Shares Euro Trust (FXE).

This ETF offers exposure to the euro, the official currency of the eurozone, relative to the U.S. dollar, increasing in value when the euro strengthens and declining when the dollar appreciates. This fund could be appropriate for investors seeking to hedge exchange rate exposure or bet against the greenback. For investors seeking exposure to the EUR/USD exchange rate, FXE is the only real ETF option available.

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