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After a Stellar 2017, Will Euro ETFs Beat Greenback in 2018?

Sanghamitra Saha
Ryder (R) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

The year 2017 can easily be credited to euro in the currency ETF world. Guggenheim CurrencyShares Euro Trust FXE gained about 12.8% in the last one year (as of Dec 27, 2017) while PowerShares DB US Dollar Bullish ETF UUP lost about 9%.

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. After all, in a historic meeting in October, the ECB announced that it would extend its asset-purchase program through September 2018 at a reduced rate.

The ECB has now decided to cut the amount of bond purchases from 60 billion euros to 30 billion euros from the beginning of 2018. The ECB will reinvest the proceeds from maturing bonds to have the entire size of its QE program increasing (read: ECB's Dovish Taper Boosts These ETFs).

The meeting marked the ECB’s first withdrawal of stimulus. Probably, this gradual tightening has made Goldman bullish on Euro. Apart from the ECB’s supportive downsizing, earnings reports in Europe and economic growth were also upbeat (read: Follow Goldman With These ETFs for 2018).

In its December meeting, the ECB has “substantially” beefed up its growth forecasts from September’s projections. The GDP growth forecasts were upped from 2.2% to 2.4% for 2017, from 1.8% to 2.3% for 2018 and from 1.7% to 1.9% for 2019 (despite the impact of Brexit). The ECB also raised its inflation forecasts for 2018 to 1.4% from 1.2% previously. All these naturally brighten the outlook for the currency euro.

On the other hand, occasional policy uncertainty in the Trump administration, geo-political risks mainly related to North Korea and moderate chances of a rise in U.S. interest rates next year given the partly hawkish Fed kept the greenback at check.

In its December meeting, the Fed forecast three more rate hikes in 2018, in line with its previous guidance. Also, the tax reform passed in the fourth quarter in the United States is largely baked in at the current level, offering moderate chances of a push in the greenback in 2018. So, if things progress accordingly in 2018, Euro may beat the U.S. dollar once again.

And if the U.S. economy exhibits remarkable growth next year and the Fed enacts as many as five rate hikes by the end of 2018 as projected by Deutsche Bank, things may go in favor of the U.S. dollar next year (read: After a Weak 2017, Can Dollar ETFs Rebound in 2018?).

ETFs to Play

That said, chances are high for a euro outperformance next year. So, investors bullish on euro can play the following ETFs (read: How to Ride 33-Month High Euro With ETFs).

ProShares Ultra Euro ULE

The fund gives twice (200%) the exposure of the U.S. dollar price of 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 provide 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 the shares to reflect the price in USD of the Euro.

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PWRSH-DB US$ BU (UUP): ETF Research Reports
 
CRYSHS-EURO TR (FXE): 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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