This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

What Currency ETFs Can Tell Us About the U.S. Economy

NEW YORK ( ETF Expert) -- The United States of America is frequently credited with being the largest economy in the world. Indeed, the U.S. produces the greatest market value of final goods and services per year.

On the other hand, when an economy is not defined by national borders, the European Union can be credited with the largest Gross Domestic Product. It is this fact that financial markets may have been underestimating since July 26.

Roughly one month ago, the president of the European Central Bank famously stated that policymakers will "do whatever it takes to preserve the euro." In fact, since Mario Draghi strongly hinted the ECB would be able to buy bonds in the way Ben Bernanke's Federal Reserve has done with its quantitative easing, both the CurrencyShares Euro Trust (FXE) as well as Vanguard Europe (VGK) have soared.

Ironically, there's no growth in the euro zone to pull the region out of its recession. Earnings in European companies , even the finest multinationals, are likely to get smaller and smaller.

That said, Draghi is not the first European leader to instill temporary confidence. One-time ECB Governor Jean-Claude Trichet dodged a credit collapse in early October 2011 by serving up loans to a dozen major European banks and pledging to spend $40 billion euros in covered bond purchases. At that point CurrencyShares Euro Trust ceased its free fall and began climbing.

Similarly, the managing director of the International Monetary Fund, Christine Lagarde, chatted up the markets and the euro-dollar in mid-January. The monster request for $1 trillion over the next several years to manage global financing needs bolstered CurrencyShares Euro Trust once more.

In each prior instance (October 2011, January 2012), CurrencyShares Euro Trust eventually broke to new lows. While one might like to believe that Draghi's July 26 promise will be an example of "third time's a charm," FXE will likely falter yet again.

Granted, markets have been willing to take Draghi's comments at face value for the last month. Yet, governments in the euro zone do not necessarily agree with the prescriptions that the ECB or IMF are putting forward. In particular, Germany's Bundesbank head Jens Weidmann as well as German Chancellor Angela Merkel may eventually do or say something that contradicts the ECB's verbal assurances.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
FXE $106.36 0.00%
UUP $25.63 0.00%
AAPL $124.75 0.00%
FB $80.78 0.00%
GOOG $524.05 0.00%

Markets

DOW 17,826.30 -279.47 -1.54%
S&P 500 2,081.18 -23.81 -1.13%
NASDAQ 4,931.8150 -75.9760 -1.52%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs