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ETF Trading Report: Dollar, Europe ETFs in Focus

Eric Dutram

Investors finally saw a decisive down day in the markets, ending the relatively bullish trend that many had been seeing for the past few weeks. This abrupt shift wasn’t the result of any changes in the U.S. market though, as all eyes centered on the tiny nation of Cyprus and their bank bailout.

The country appears likely to vote on a very controversial plan that could tax all deposits in the small nation at a rate of nearly 10% for those with more than 100,000 euros deposited. This is pretty surprising as it comes just days after Cyprus leaders assured depositors that a tax was not in the works, and that all their capital was safe.

This no longer appears to be the case and it has called into question future bailouts of other weak countries in the region. After all, if this can happen in Cyprus, many are wondering, what is to stop it from happening in other fiscally weak nations in the region?

This speculation reignited worries over key markets and sent stocks tumbling across the globe. Asian benchmarks finished the day down about 2% on average, while European and American indexes did slightly better, but were still down on the day (read 2 Sector ETFs Posting Incredible Gains).

Commodities and bonds were also volatile, as investors embraced safe havens and hard assets alike. Gold and crude were both up on the session, while American benchmark debt saw yields slump thanks to higher demand for low risk assets.

Meanwhile in the ETF world, there was a great deal of interesting trading activity thanks to this market shift. Many key products saw trading volumes that were in-line with averages, but a number of leveraged and currency funds saw heavier volume days.

In particular, ETF investors saw a big volume day out of the PowerShares US Dollar Bullish Fund (UUP). This ETF saw volume levels that were roughly 1.5 times higher than normal, largely thanks to the demand for dollars and the exodus away from euros (see What’s next for Currency ETFs?).

This is especially important in this ETF, as the majority of its exposure is in euros anyway. Thus, when investors are having an opinion on this currency—as well as the rest of the global currency market—this fund is a popular choice. During today’s trading, the ETF added about 0.7%, continuing the bullish trend for this product in the short term.

Another in focus product was the ProShares Short MSCI EAFE ETF (EFZ). This inverse fund usually does about 75,000 shares in volume, but today saw a spike to a roughly quarter million shares a day, largely thanks to the renewed fears of a European problem (read the Guide to the Most Popular ETFs).

The ETF also moved higher in the session, gaining about 1.2%, thanks to its heavy European exposure. In fact, Europe accounts for roughly two-thirds of EFZ’s exposure profile, so any more negative news out of the continent is very likely to have a positive impact on this inverse ETF going forward.

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