ETFs to Use As Euro Sees Weakness Against Dollar

The euro started the new year strong, but despite this, some analysts are tepid on its rally. That said, it helps to use ETFs that can hedge the euro against the dollar like the Xtrackers MSCI Europe Hedged Equity ETF (DBEU) and the Xtrackers MSCI Eurozone Hedged Equity ETF (DBEZ) .

Source: ETFs to Use As Euro Sees Weakness Against Dollar

Per a Poundsterlinglive.com article, “Understandably, many foreign exchange analysts we follow say that should the positive global investor environment extend, the Euro-Dollar can go higher but a deterioration in sentiment leaves the pair exposed to decline.”

“Bullish sentiment pushed the euro higher on the year’s first trading day. Europe’s single currency soared more than 1% as it held aloft near its 2020 peak. The euro enjoyed double-digit appreciation in 2020 when it rose by 10 cents, or 9%, against its U.S. counterpart, reaching its highest since April 2018,” says Joe Manimbo, Senior Market Analyst at Western Union.

Fortunately, DBEU and DBEZ incorporate a hedging component that can protect against euro weakness. At the same time, the funds can capture any upside in European equities.

1. DBEU: seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI Europe US Dollar Hedged Index. The fund, using a “passive” or indexing investment approach, seeks investment results that correspond generally to the performance, of the underlying index, which is designed to track the performance of the developed markets in Europe, while mitigating exposure to fluctuations between the value of the U.S. dollar and the currencies of the countries included in the underlying index.
2. DBEZ: seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI EMU IMI US Dollar Hedged Index. The fund, using a “passive” or indexing investment approach, seeks investment results that correspond generally to the performance, of the underlying index, which is designed to track the performance of equity securities based in the countries in the European Monetary Union, while seeking to mitigate exposure to fluctuations between the value of the U.S. dollar and the euro.

Focusing on Downside Risks

The main focus now in 2021 for the European investors is to prevent downside risk in the euro. Per the Poundsterlinglive article, the flash rally to start 2021 got the euro “off to a flying start by climbing over a percent to 1.23, but the rally could be reaching its zenith according to one foreign exchange strategist we follow.”

“We are more focused on the downside given the event risks, for now,” says Mazen Issa, Senior FX Strategist at TD Securities.

“In fact, a lack of conviction in the Euro’s new-year rally has lead TD Securities to make selling the Euro against the U.S. Dollar their ‘trade of the week,'” the article noted.

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