The Xtrackers MSCI Europe Hedged Equity ETF (DBEU) and the Xtrackers MSCI Eurozone Hedged Equity ETF (DBEZ) are both up about 3% to start the new year. While both funds feature a euro hedging strategy, the currency could be gaining strength amidst a weaker dollar.

DBEU seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI Europe US Dollar Hedged Index. The fund, using a “passive” or indexing investment approach, seeks investment results that correspond generally to the performance, of the underlying index, which is designed to track the performance of the developed markets in Europe, while mitigating exposure to fluctuations between the value of the U.S. dollar and the currencies of the countries included in the underlying index.

DBEU Chart

DBEZ seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI EMU IMI US Dollar Hedged Index. The fund, using a “passive” or indexing investment approach, seeks investment results that correspond generally to the performance, of the underlying index, which is designed to track the performance of equity securities based in the countries in the European Monetary Union, while seeking to mitigate exposure to fluctuations between the value of the U.S. dollar and the euro.

DBEZ Chart

Is the U.S. Dollar Index Heading Into Bearish Territory?

We can see the weakness in the greenback via the Dow Jones FXCM Dollar Index. It’s down about 3% within the past 3 months amid a renewed interest in equities.

^DJFXCMD Chart

Price action in the U.S. Dollar Index could be revealing downward pressure. Additional stimulus could add an even more bearish spin on the greenback.

“The U.S. Dollar Index is currently trying to settle below the nearest support level at 90.50,” an FX Empire article said. “If this attempt is successful, the U.S. Dollar Index will gain downside momentum and head towards the next support level at the 20 EMA at 90.25 which will be bullish for EUR/USD.”

“In absence of important economic reports, foreign exchange market traders will likely focus on rising U.S. Treasury yields and general market sentiment. Rising yields have provided support to the U.S. dollar but it remains to be seen whether the recent rebound will be sustainable,” the article continued. “Democrats will likely introduce another stimulus package after Biden enters office, and it is not clear whether the U.S. dollar will continue to enjoy the support from rising yields amid a new round of money-printing.”

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