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Expensive Euro Could be Ready for a Fall


The euro has been one of the stronger developed market currencies for over a year now. Over the past 12 months, the CurrencyShares Euro Currency Trust (FXE) is higher by nearly 6% while the PowerShares DB US Dollar Index Bullish Fund (UUP) is lower by 5.4%.

The sturdy common currency has been a thorn in the side of some export-dependent Eurozone members, including Germany, the region’s largest economy. Persistent euro strength has also stoked speculation the European Central Bank could engage in quantitative easing to depreciate the currency a bit. [ETFs for ECB Easing]

A technical view on the matter shows the euro is at a crossroads, one where it could break higher and post another impressive rally or it could falter, just as bullish sentiment is reaching not-often-seen levels.

“The Euro has done well over the past couple of years, pushing higher and now its near the top of falling channel resistance. This rally has caused a few investors to become bullish the Euro, nearing peak bullish levels over the past couple of years. Is the Euro about to peak hear or can it push itself up and beyond resistance?,” says Chris Kimble of Kimble Charting Solutions.

Investors looking to profit from a possible euro decline have options in the form of 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. It has an expense ratio of 0.95%. [New Bearish Euro ETFs]

EUO, which had almost $424 million in assets under management at the end of last year, is the double-leveraged brethren of EUFX. DRR tracks the Double Short Euro Index. The ETN charges 0.65% per year and had $34.6 million in assets as of April 23, according to Market Vectors data.

Euro Chart


Chart Courtesy: Kimble Chart Solutions

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.