Euro At 2-Year High: ETF Winners & Losers
Zacks Investment Research | Jul 24, 2017 01:00AM ET
The euro has been on a tear lately, being at a ECB to Wind Up QE Soon? ETFs in Focus ).
The dual effect made the euro sizzle against the U.S. dollar. In the last five days (as of July 21, 2017), CurrencyShares Euro ETF (NYSE:FXE) UUP lost about 1.2%.
Other Factors Behind Upbeat Euro
The Euro zone saw a strong start to the year thanks to economic improvement and upbeat corporate earnings. The economy grew How to Trade Strengthening Euro Zone Economy via ETFs ).
The growth also marked the strongest economic expansion rate since the first quarter of 2015, helped by fixed investment and household consumption. Apart from this, political upheaval has been ebbing with the Netherlands and France elections discarding populism. Pro-growth election win in these areas and hopes of a favorable deal in Brexit have buoyed the currency lately (read: French Election Soothes Sentiments: ETFs Likely to Benefit ).
Will Euro Surge Further?
With lesser chances of the President’s success in pushing through his pro-growth pledges given the unsuccessful health care reform, Trump trade is likely to take a backseat in the U.S. Plus, overvaluation concerns in U.S. stocks and some weaker-than-expected economic data led U.S. Treasury yields to remain subdued in recent sessions. If nothing pro-growth happens in the U.S., the euro will likely have more room to run (read: Why & How to Trade the Soaring Euro with ETFs ).
If the situation persists in the near term, the following ETF investing areas may gain or lose.
ETF Winners
There are ETFs like FXE and Ultra Euro ETF ULE to go long on Euro. While the investment objective of FXE is to reflect the price of the euro in U.S. dollar, ULE measures twice the U.S. dollar price of the euro.
ETF Losers
The euro’s strength doesn’t bode well for several European equities as it may ruin companies’ export competitiveness. As a result, most of the European equities’ ETFs lost in recent sessions, with currency-hedged products witnessing maximum deterioration. Below we highlight a few.
iShares Currency Hedged MSCI Germany ETF HEWG
The German DAX index retreated 1.7% on July 21 to record its EWG declined over 1.1%.
iShares MSCI EMU ETF EZU
The pan-European Stoxx 600 index shed about 1% on July 21. The fund EZU, which tracks stocks from 11 countries that use the Euro as their official currency, declined about 0.8% on July 21.
iShares MSCI France ETF EWQ
The French CAC 40 index slumped 1.6%, registering its biggest drop since April 18, as per CNBC . The fund lost over 0.7% on July 21.
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