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ECB Meeting Prep with Bearish Euro ETFs


The euro currency weakened to a two-year low against the U.S. dollar as more are calling for the European Central Bank to do more to support the ailing Eurozone economy. Currency traders who want to hedge ahead of any central bank moves Thursday can utilize inverse exchange traded fund options.

The CurrencyShares Euro Currency Trust (FXE) dipped 0.7% Wednesday. Year-to-date, FXE has declined 10.3%.

The euro currency depreciated 0.6% to $1.2307 Wedneday.

Currency traders can also capitalize on the turn in the European euro through inverse ETF options. For instance, the ProShares Short Euro (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 and the ProShares UltraShort Euro (EUO) provides 200% of the inverse return of the U.S. dollar price of the euro on a daily basis. Additionally, the Market Vectors Double Short Euro ETN (DRR) tracks the Double Short Euro Index, which also provides a -200% exposure to the euro.

Market observers are anticipating the ECB will expand its loose monetary policy as negative data keeps flowing out of the Eurozone. For instance, Markit Economics revealed that the Purchasing Managers Index dipped to 51.1 from 52.1 in October, the lowest reading in 16 months, and the data provider expects economic growth of just 0.1% this quarter, reports Rachel Evans for Bloomberg.

“Expectations for ECB action have risen,” Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities, said in the article. “Monetary-policy divergence is still very much the theme and euro-dollar is at new lows as we head into the meeting.” [Dollar Strength is Here to Stay]

The European Monetary Union’s ECB will release an announcement early Thursday. Many anticipate more easing, which would further weaken the euro against the greenback.

“The market’s getting prepared for at least a very dovish ECB,” Mark McCormick, a foreign-exchange strategist at Credit Agricole SA, said in the article. “The euro’s going to weaken pretty substantially against the dollar in 2015.”

On the other hand, if the ECB fails to meet expectations and the euro currency begins to appreciate, more aggressive currency traders can use leveraged long ETFs, such as the ProShares Ultra Euro (ULE) and Market Vectors Double Long Euro ETN (URR) , which both take the double or 200% performance of the USD price of the euro.

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

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. 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.