Euro’s Rally Temporary, UBS Says Expect A Decline To $1.20

May 10, 2010 12:12pm NYSE:DRR

UBS sees a short term rally for the Euro, although their long term look is not very rosy. Businessweek is quoting Mansoor Mohi-uddin, Singapore-based global head of currency strategy at UBS as saying, “Policy in the region is becoming very unfavorable. Investors should use gains in the euro to make fresh bets it


 will decline toward $1.20 within three months. The European package may drive a “temporary rally” in the euro toward $1.35 before it resumes its decline The euro will definitely hit what we call its long-term fair value at $1.20 and it may easily overshoot that if difficulties in Europe persist. The policy mix in Europe is becoming very unfavorable to the currency.”

Barclays is on the same page with the $1.20 estimate. “We remain euro bears and continue to forecast euro/U.S.dollar to head lower to $1.20 in the coming three months,” David Forrester, a currency economist at Barclays Capital in Singapore, wrote in a note to clients. The agreement means “the ECB will have to play a larger role in terms of keeping monetary policy loose for longer in order to help euro area countries to grow out of their fiscal problems.” Despite the short-term currency reaction, the EU’s plan is “ultimately a negative” for the euro.

Investors wishing to an alternative way to trade the EUR/USD or invest in the Euro currency (EUR) have 7 ETFs sponsored by several ETF providers that give long Euro exposure, double long Euro exposure, and short Euro exposure depending where you see the Euro going in the short and long term.

Long Euro ETF

CurrencyShares Euro Trust (FXE)
CurrencyShares Euro Trust is designed to track the price of the euro net of Trust expenses, which are expected to be paid from interest earned on the deposited euros.

WisdomTree Dreyfus Euro (EU)
The investment seeks to earn current income reflective of money market rates within the European Union available to foreign investors and maintain liquidity and preserve capital measured in Euros. The fund invests primarily in very short-term, investment grade money market securities denominated in Euros with a weighted average maturity of 60 days or less and does not purchase any security with a remaining maturity of more than 397 calendar days.

iPath EUR/USD Exchange Rate ETN (ERO)
The investment seeks to track the price and yield performance, net of expenses, of the Euro/U.S. dollar exchange rate.

Double Long Euro ETF

Ultra Euro ProShares (ULE)
The investment will seek to replicate, net of expenses, twice the performance of the EUR/USD daily price change. The fund normally invests assets in financial instruments with economic characteristics twice the return of the index. It may employ leveraged investment techniques in seeking its investment objective.

Market Vectors Double Long Euro ETN (URR)
The investment seeks to replicate, net of expenses, the Double Long Euro Index. As the index is two-times leveraged, for every 1% strengthening of the euro relative to the U.S. dollar, the level of the index will generally increase by 2%, while for every 1% weakening of the euro relative to the U.S. dollar, the index will generally decrease by 2%.

Short Euro ETF

Market Vectors Double Short Euro ETN (DRR)
The investment seeks to replicate, net of expenses, the Double Short Euro Index. As the index is two-times leveraged, for every 1% weakening of the euro relative to the U.S. dollar, the level of the index will generally increase by 2%, while for every 1% strengthening of the euro relative to the U.S. dollar, the index will generally decrease by 2%.

UltraShort Euro ProShares (EUO)
The investment will seek to replicate, net of expenses, twice the inverse performance of the EUR/USD daily price change. The fund normally invests assets in financial instruments with economic characteristics inverse to the index. It may employ leveraged investment techniques in seeking its investment objective.


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