Italy Troubles Keep Pressure on Euro ETFs
This article was originally published on ETFTrends.com.
The euro currency and related ETF have been stuck in a rut as concerns over Italy's budget scuffle with the European Union and speculation of an Italian exit from the euro bloc.
The Invesco C urrencyShares Euro Currency Trust (FXE) slipped 0.3% Wednesday with the euro currency now trading around $1.1523. FXE has declined 1.9% over the past week and was down 4.3% year-to-date.
Dragging on euro currency sentiment, Claudio Borghi, who leads the economic policy of the ruling Lega party in Italy, cast doubt over the country's membership in the Eurozone, CNBC reported.
"I am truly convinced that Italy would solve most of its problems if it had its own currency," Borghi said in a radio interview Tuesday.
ETF traders who are wary of the euro currency's outlook could also capitalize on further woes through inverse or bearish euro-related ETFs. 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. The VanEck Vectors Double Short Euro ETN (DRR) tracks the Double Short Euro Index, which also provides a -200% exposure to the euro. The VelocityShares Daily 4X Long USD vs. EUR (DEUR) takes 4x or 400% exposure to the moves of the U.S. dollar against the euro currency.
The coalition government is comprised of two euro-skeptic, anti-establishment parties. The Lega party has made similar comments on leaving the Eurozone before the election in March but retched down the rhetoric on the controversial issue.
Reduction of public debt?
Further muddying the waters, the new populist government prepared it first budget while observers were concerned that increased public spending will derail the reduction of public debt. However, Italy assuaged markets and proposed plans to reduce its budget deficit over the next three years.
“That the Italian government is trying to appease its EU partners can be seen as a step in the right direction and therefore justifies some euro-positive reaction,” Thu Lan Nguyen, a FX strategist at Commerzbank AG, told Reuters.
Nevertheless, the speculation over Italy's involvement in the euro bloc has left lingering concerns over the currency's outlook.
“When was the last time you ever heard anybody question the integrity of any other G8 currency?” CMC Markets’ chief analyst, Michael Hewson, told Reuters. “The fact that politicians feel the need to constantly reiterate this line speaks to a fundamental weakness at the heart of the single-currency area."
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