Currency investing is not the easiest endeavor, but
should make it a bit easier, right? Maybe not. Although trading
forex pairs is easily quantified with a winning and losing
currency on each side of the pair, things have turned tricky at
the ETF level.
), the world's largest ETF sponsor, recently said there is $4.3
billion invested in various currency ETFs and ETNs, but investors
pulled $55 million from those products last month, bring the
year-to-date outflows to $79 million.
ETFs that track struggling currencies such as the Australian
dollar and plunging emerging markets currencies would seem to be
obvious offenders in the current environment, but S&P Capital
IQ offered up a less-than-encouraging assessment of the U.S.
Dollar Index in addition to emerging markets fare.
"According to Mark Arbeter, S&P Capital IQ's Chief
Technical Strategist, the U.S. Dollar Index continues to fall
after hitting some tough overhead supply from its prior high from
July 2012 in the 83 to 84 region. Arbeter notes that since the
closing high of 83.22 at the end of March and the intraday peak
of 83.49 in early April, the index has dropped to just below the
81 level, the lowest it has been since February," S&P Capital
IQ said in a new research note.
A look at the PowerShares DB US Dollar Index Bullish (NYSE:
), which is the Dollar Index tracking ETF, shows S&P Capital
IQ might be on to something. Despite savage repudiation of
riskier developed market currencies and emerging markets
currencies of all stripes, UUP has lost 3.3 percent in the past
looks poised to test support at $21.60
"Commitment of Traders (
) data continues to warn that the greenback may see additional
profit taking, according to S&P Capital IQ. Commercial
hedgers remain net short by a large margin. At the same time,
large and small speculators remain very bullish toward the dollar
with respect to their futures positions. Many times in the past,
this combination of COT data has led to decent-sized pullbacks,
according to Arbeter," said S&P in the note.
The research firm was equally cautious about the WisdomTree
Dreyfus Emerging Currency (NYSE:
), an ETF that tracks 15 developing world currencies.
"Fears of a peak in global monetary stimulus have led to
profit taking in many popular higher-yielding emerging market
currency carry trades that have benefited from extreme central
bank policy accommodation, leading to a broad based sell-off in
EM assets from stocks to bonds," said S&P analyst Alec
Of course, there is another side to the story. UUP has seen
inflows of almost $86.4 million over the past month, while its
bearish equivalent, the PowerShares DB US Dollar Index Bearish
) has not received any new capital,
according to PowerShares flow data
As for CEW, it can be argued that investors are treating
emerging currencies, particularly the Asian ones, as if today's
environment's resembles the days of the Asian and Russian
defaults. A case can be made
that emerging currencies have been beaten up too
much too rapidly
and a buying opportunity may be near.
One day is just one day, but it is worth noting CEW gained
0.74 percent Thursday on volume that was more than seven times
the daily average.
For more on ETFs, click
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