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Technical Tests for Europe ETF ‘EZU’

This article was originally published on ETFTrends.com.

The iShares MSCI EMU ETF (Cboe: EZU) is among the Europe exchange traded funds struggling this year. Year-to-date, the $9.52 billion EZU is lower by more than 6%.

The slowing Eurozone growth in recent months coupled with unease over the stability of the European Union as the anti-establishment Five Star Movement and far-right League formed a government in Italy fueled concerns over Eurozone assets. Furthermore, rising trade tensions as the Trump administration escalates protectionist rhetoric also weighed on the export-heavy Eurozone market.

“The underperformance in EZU may have been pronounced last week, but it certainly wasn't a new development. The fund's rally attempts in mid-June and late July were curbed by emerging resistance at its formerly supportive 200-day and 320-day moving averages, respectively. And since a June 18 bear gap into negative year-to-date territory, EZU has been unable to claw its way back into the green for 2018,” according to Schaeffer's Investment Research.

EZU Details

EZU, which tracks the MSCI EMU Index, holds 251 stocks. Approximately 63% of the fund's geographic weight is allocated to France and Germany, the Eurozone's two largest economies. That also makes EZU vulnerable to an ongoing trade spat between Europe and the U.S.

The U.S. already placed tariffs on European steel and aluminum, and the European Union has responded with tariffs on many U.S. products, with Harley-Davidson motorcycles and bourbon among the most prominent products on the hit list. On a technical basis, EZU currently looks oversold.

Last Thursday, “after its 14-day Relative Strength Index (RSI) had fallen to a deeply oversold 24.7, within range of its own multi-year lows -- EZU bounced back to close last Thursday squarely at $40 per share. And while the fund managed to maintain its grip north of $40 through Friday's close, there have now been three consecutive sessions where this level has been breached on an intraday basis,” according to Schaeffer's.

EZU currently resides almost 5.5% below its 200-day moving average. The ETF likely needs to clear the $40 area to encourage new buyers to step in.

“Notably, the $40 region is something of a "double round number" for EZU, as this area is also home to a round 10% year-to-date decline (at $39.04). Also nearby is a 50% retracement of the fund's rally from its June 2016 Brexit-era low to its January 2018 high, at $38.42,” said Schaeffer's.

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