While the Eurozone appears to be back on track after a two-year
debt crisis, the recent rate cut by the European Central Bank (ECB)
has led to questions about the common currency.
Thanks to the steep decline in CPI inflation that hit as low as
0.7% in October and the rising worries about the region's banking
sector's liquidity, the ECB has apparently resorted to such a move.
Notably, the ECB follows a directive to maintain inflation rates
close to 2%.
The ECB slashed its benchmark interest rate 25 basis points to a
record low of
that strained the euro against the greenback. Following the
announcement, the euro currency slumped against the dollar by about
1%. Added to this, a better-than-expected
U.S. economic data
again stirred up the possibilities of the Fed's tapering which is
likely to push up the dollar further.
Following the news,
CurrencyShares Euro Trust
) - designed to track the performance of the euro against the
dollar - lost 0.7%. We are maintaining our strong sell
recommendation on this Euro ETF. As a result, investors who are
bearish on the euro right now, definitely for a valid reason, may
consider a near-term short on the space.
Fortunately, ETFs offer several options to investors to accomplish
this task. Below, we highlight a few of the options in the inverse
ETF space. These ETFs make a profit when the euro declines and are
suitable for hedging purposes against the fall in the currency
Guide to the 10 Most Popular Leveraged Inverse
ProShares Ultra Short Euro ETF
This leveraged ETF was launched in November 2008 and looks to
provide twice the inverse exposure to the performance of euro
versus the U.S. dollar on a daily basis.
The product has amassed over $436.6 million in AUM while it trades
at a volume of 700,000 shares daily. However, given its active
management style, the ETF charges a hefty annual expense ratio of
95 basis points.
Following the rate cut announcement, EUO crept up 1.47% (as on
November 7) although the product suffered a loss of 5.42% on a
year-to-date basis thanks to the strength of the euro earlier in
the year (read:
Is Rising Euro hurting Euro-zone?
Investors could book more profits off this fund, should the euro
continue to struggle.
Market Vectors Double Short Euro ETN
This is an exchange-traded note issued by Morgan Stanley. The
product seeks to track the performance of the Double Short Euro
Index. For every 1% weakening of the euro relative to the
greenback, the Index normally gains 2%. The choice is an overlooked
one with just $80.9 million in AUM. The product charges an expense
ratio of 0.65% a year.
While on a year-to-date basis, the product shed 5.35% (as on
November 7, 2013), it rose 1.37% following the announcement.
Although after prolonged weakness, the euro zone returned to growth
of this year, the growth rate was soft at 0.3%. It is quite
clear that the region is far from being stable and still needs time
Further, with nearly
four-year lows of inflation
and a record-high unemployment report in September, the European
its euro-zone GDP growth forecast for next year and raised its
unemployment estimate. Thus, pressure on euro could remain in the
In such a scenario, the ECB will certainly leave no stone unturned
to trigger growth. A strengthening euro is likely to hurt the
company's export profile, which is why the ECB tries to keep a
check on further euro appreciation.
Given this, investors can ignore the euro at the current level or
book profit out of some inverse products. However, these products
should only be considered for very short-term trading purposes, but
they could be interesting over the next few days if we see some
more euro weakness.
Want the latest recommendations from Zacks Investment Research?
Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
MKT-VEC DB S EU (DRR): ETF Research Reports
PRO-ULS EURO (EUO): ETF Research Reports
CRYSHS-EURO TR (FXE): ETF Research Reports
PWRSH-DB US$ BU (UUP): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for the
Next 30 Days. Click to get this free report