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Inverse Euro ETFs to Hedge Against ECB’s Willingness to Expand QE


The euro dipped to a two-week low after the European Central Bank signaled an increase in monetary stimulus to prop up a flagging economy. Exchange traded fund currency traders can also hedge against further weakness through inverse strategies.

Currency traders who are looking to profit off any potential weakness in the EUR ahead can utilize inverse euro-currency ETF options. For example, the ProShares Short Euro (EUFX) provides 100% of the inverse or opposite return on the U.S. dollar price of the euro. The ProShares UltraShort Euro (EUO) provides 200% of the inverse return of the U.S. dollar price of the euro. Lastly, the Market Vectors Double Short Euro ETN (DRR) also provides a -200% exposure to the euro.

While the CurrencyShares Euro Currency Trust (FXE) dipped 0.9% Thursday, EUFX gained 0.9% on about 34 times its normal volume. Additionally, EUO rose 1.8% and DRR increased 2.2%.

The euro depreciated 0.9% and now trades about 1.1125 to the U.S. Dollar. The EUR touched a low of $1.1107 earlier Thursday, its weakest level since August 20, reports Chiara Albanese for the Wall Street Journal.

The Eurozone currency was weakening after the European Central Bank stated that it will adjust the parameters of its bond-buying program, raising the limit on quantitative easing to 33% from 25%, reports Eshe Nelson for Bloomberg.

“Dovish Draghi taking markets by surprise,” Valentin Marinov, head of Group-of-10 currency research at Credit Agricole SA’s corporate and investment-banking unit, told Bloomberg. Policy makers are “highlighting that they can adjust the size of QE if needed and finally signal that September 2016 may not be the end of QE.”

The weaker euro also helps support the local economy as the exporters are a major facet of the Eurozone economy. A weakening EUR makes it Eurozone goods cheaper in foreign markets and easier to sell.

Additionally, the Federal Reserve has already stated it will implement an interest rate hike sometime this year, with some observers anticipating a rate change sometime in December if not later this month. A tighter Fed monetary policy would also help strengthen the U.S. dollar against foreign currencies or cause the EUR to depreciate against the USD.

ProShares Short 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.