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Bearish ETFs to Play a Weakening Euro


After the European Central Bank meeting, traders are now the most bearish on the euro as they have been in almost a year, putting pressure on euro-related exchange traded funds.

The CurrencyShares Euro Currency Trust (FXE) was down 0.2% Tuesday. FXE has declined 1.0% over the past month and is down 1.5% year-to-date.

Bearish bets on the euro currency as of June 10 reached a net $10 billion in trades against the U.S. dollar, reports Chiara Albanese for the Wall Street Journal.

While traders have been taking on greater short euro positions ahead of the ECB’s June 6 meeting, bearish bets have accelerated in the following days after the central bank confirmed its easing policies. [ECB Speculation Drives Euro ETF to Three-Month Low]

“There was a surge in bearish euro sentiment,” Scotiabank’s Foreign Exchange Strategist Camilla Sutton said in the article. “Most other position changes paled in comparison.”

The EUR now trades at around 1.3541 USD.

Now, traders expect the euro currency to break down even further. Alan Wilde, head of global fixed income at Baring Asset Management, argues that the Eurozone currency could dip to 1.3 USD. Société Générale believes the euro could even fall to 1.27 USD next year.

“The market is bearish. The market knows the market is bearish and the market has lost money being bearish,” macro-strategist Kit Juckes said in the article.

Looking ahead, bearish euro traders will have to wait on worsening Eurozone data or accelerating Federal Reserve policies to push the euro currency down.

Investors looking to profit from a possible euro decline have short or bearish options as well, including the ProShares UltraShort Euro (EUO) , the ProShares Short Euro (EUFX) and the Market Vectors Double Short Euro ETN (DRR) .

EUFX is designed to provide 100% of the inverse, or opposite, return of the U.S. dollar price of the euro, on a daily basis. The fund is up 1.1% over the past month and up 1.3% year-to-date.  [New Bearish Euro ETFs]

EUO is the double-leveraged version of EUFX, providing a -2x, or -200%, daily performance of the euro currency. The ETF is up 1.9% over the past month and up 1.9% year-to-date.

DRR tracks the Double Short Euro Index, which also provides a -200% exposure to the euro. However, DRR is an ETN, or a type of debt instrument that is subject to the credit worthiness of the underwriting bank. The ETN is up 1.2% over the past month and up 2.5% year-to-date.

CurrencyShares Euro Currency Trust


For more information on the Eurozone currency, visit our euro category.