ECB Meeting Puts These Euro ETFs in Focus
The European Central Bank (ECB) kept interest rates unchanged and indicated that “they expect borrowing costs to stay at present levels until well past the end of net bond purchases.” The bank will continue buying 30 billion euros ($37 billion) of assets a month until at least the end of September. Deposit rate, main refinancing rate and marginal lending rate were kept unchanged at negative 0.4%, zero and 0.25%, respectively.
The ECB’s first policy decision of 2018 comes after the euro surged to its strongest level against the dollar in more than three years. U.S. Treasury Secretary Steven Mnuchin recently promoted a weaker greenback, in order to boost the nation’s trade. This in turn sent the euro northward once again (read: After a Stellar 2017, Will Euro ETFs Beat Greenback in 2018?).
The euro jumped Thursday afternoon to a new three-year high as concerns over the future of the ECB’s stimulus program heightened. The ECB announced in October that it would extend its asset-purchase program through September 2018 at a reduced rate. The meeting marked the ECB’s first withdrawal of stimulus.
Investors are betting on a likely strengthening in the single currency in 2018 after a great 2017 — “its best year versus the greenback since 2003.” Goldman Sachs is also bullish on euro for this year. Late last year, Goldman predicted the euro-yen rate to head to 140 in 2018 (read: Follow Goldman With These ETFs for 2018).
Jane Foley, head of foreign exchange strategy at Rabobank, told CNBC that "the economic data is too strong", adding that investors are therefore persuaded by the belief that the central bank needs to tighten its policy, though the bank is sending dovish messages.
The euro has been on an upward march in recent times thanks to the region's economic growth and lowered political risks especially related to government shutdown. However, European stocks are likely to come under pressure thanks to a stronger euro as it lowers the region’s export competitiveness. This in turn could affect inflation in the Euro zone.
Vanguard FTSE Europe ETF VGK was up 8.7% in the last three months (as of Jan 25, 2018) versus 10.9% gains for SPDR S&P 500 ETF SPY (read: A Tale of Two Currencies and The ETF Impact).
ETFs to Play
That said, chances are high for a euro outperformance in the coming days. So, investors bullish on euro can play the following ETFs.
ProShares Ultra Euro ULE
The fund gives twice (200%) the exposure of the U.S. dollar price to the Euro.
Market Vectors Double Long Euro ETN URR
This seeks to track the performance of the Double Long Euro Index, less investor fees. The ETN provides investors with cost-effective access to a two-times-leveraged, long exposure to the performance of the euro relative to the U.S. dollar.
iPath EUR/USD Exchange Rate ETN ERO
The EUR/USD exchange rate is a foreign exchange spot rate that measures the relative values of two currencies, the euro and the U.S. dollar. When the euro appreciates relative to the U.S. dollar, the EUR/USD exchange rate increases and vice versa.
Guggenheim CurrencyShares Euro Trust FXE
The trust issues Euro Shares that represent units of fractional undivided beneficial interest in, and ownership of itself. The investment objective of the Trust is for its shares to reflect the price in USD of the Euro.
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SPDR-SP 500 TR (SPY): ETF Research Reports
CRYSHS-EURO TR (FXE): ETF Research Reports
VANGD-FTSE EUR (VGK): ETF Research Reports
PRO-ULT EURO (ULE): ETF Research Reports
IPATH-EUR/US EX (ERO): ETF Research Reports
MKT-VEC DB L EU (URR): ETF Research Reports
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