Scalper1 News
With the prospect of interest rate hike back on the table, dollar is likely to hit parity with Euro anytime soon. This is especially true as the Fed hinted at a modest December lift-off if the U.S. economy remains on track. The tight monetary policy will reduce the supply of money flowing into the economy, leading to strength in the greenback. As a result, dollar resumed its clear upward journey against the basket of other currencies, rising over 6% in the past one month. And guess what? The latest string of economic data is clearly supporting this view with October payrolls logging the biggest gain this year, unemployment falling to a new seven-year low of 5% and average hourly wages showing the sharpest growth since July 2009. Consumer confidence is also up, with the University of Michigan consumer sentiment index rising to 93.1 in early November from 90 in October, after dropping to 87.2 in September from 91.9 in August. While the manufacturing sector expanded at its slowest pace in more than two years in October on a weak global economy and strong dollar, rise in new orders spread some hopes in the sector. After two straight months of decline, inflation also rose a modest 0.2% last month – an important factor in the Fed rate hike decision. All these suggest that the U.S. economy is showing an impressive rebound after a lazy summer and looks strong enough for a December rate increase. On the other hand, euro has been slumping against the dollar and tumbled 6% in the past one month. The European Central Bank (ECB) has been looking for more stimulus measures as soon as December to spur growth in the economy and fight against deflation. Currently, the ECB is pumping €60 billion ($68 billion) per month into the sagging economy courtesy of its QE program that began in March and will run through September 2016. These diverging policies will continue to drive the U.S. dollar upward, thereby resulting in depreciation of the euro against the greenback. Further, the latest terrorist attack in the capital of France parked geopolitical tensions and raised concerns over the slowly recovering economy, pushing the euro down. Meanwhile, the tragedy has shaken investors’ confidence around the world, encouraging them to take a flight to safety in the U.S. dollar. If the current trend persists, the EUR/USD parity may be seen as euro will continue to fall while dollar will continue to rise. Investors seeking to tap this opportune moment could bet on the following ETFs. PowerShares DB US Dollar Bullish Fund (NYSEARCA: UUP ) UUP is the prime beneficiary of the rising dollar as it offers exposure against a basket of six world currencies – euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. This is done by tracking the Deutsche Bank Long US Dollar Index Futures Index Excess Return plus the interest income from the fund’s holdings of U.S. Treasury securities. In terms of holdings, UUP allocates nearly 57.6% in euro while 13.6% collectively in Japanese yen and 11.9% in British pound. The fund has so far managed an asset base of over $1 billion while sees an average daily volume of around 2.2 million shares. It charges 80 bps in total fees and expenses, and gained 4.9% over the past one month. The fund has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook. WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEARCA: USDU ) This product offers exposure to the U.S. dollar against a basket of 10 developed and emerging market currencies by tracking the Bloomberg Dollar Total Return Index. The fund allocates higher to the Euro at 30.3%, closely followed by Japanese yen (18.5%), Canadian dollars (11.8%) and Mexican peso (10.1%). Other currencies like British pound, Australian dollar, Swiss franc, South Korean won, Chinese yuan and Brazilian real receive single-digit allocation in the fund’s basket. This ETF has amassed $248.4 million in its asset base and charges 50% in expense ratio. Volume is light as it exchanges nearly 195,000 shares a day on average. The fund added 3.5% over the past four weeks. ProShares Short Euro (NYSEARCA: EUFX ) This fund seeks to deliver the inverse return of the daily performance of euro versus the U.S. dollar. It is often overlooked by investors as it has just $17.9 million in its asset base while volume is light at around 16,000 shares per day. It charges 95 bps in annual fees and added 6.3% over the past month. Original Post Scalper1 News
Scalper1 News