Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

As Fed Tapering Concerns Dominate, 2 Currency ETFs To Participate In FX Moves

By Investing.com (Tezcan Gecgil/Investing.com )ETFsSep 03, 2021 16:55
ph.investing.com/analysis/as-fed-tapering-concerns-dominate-2-currency-etfs-to-participate-in-fx-moves-90478
As Fed Tapering Concerns Dominate, 2 Currency ETFs To Participate In FX Moves
By Investing.com (Tezcan Gecgil/Investing.com )   |  Sep 03, 2021 16:55
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Currency exchange-traded funds (ETFs) enable retail investors to participate in the foreign exchange market. Market participants can buy or sell a currency fund similar to an equity ETF.

According to the Bank for International Settlements triennial report of 2019:

"Trading in FX markets reached $6.6 trillion per day in April 2019, up from $5.1 trillion three years earlier.... The US dollar retained its dominant currency status, being on one side of 88% of all trades. In April 2019, sales desks in five countries—the United Kingdom, the United States, Hong Kong, Singapore and Japan—facilitated 79% of all foreign exchange trading."

Today we introduce two currency ETFs that could appeal to a range of readers.

1. Invesco DB US Dollar Index Bullish Fund

Current Price: $24.78
52-Week Range: $24.09 - $25.60
Expense Ratio: 0.76% per year

This ETF is for US dollar bulls. Over the past year, the US Dollar Index futures has been flat. The Federal Reserve introduced the USDX in 1973 with an initial value of 100.

It measures the value of the US dollar relative to a basket of six currencies—the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. The index rises when the greenback strengthens against these currencies, especially the euro.

Institutional investors in currency, bonds and commodities (especially gold) as well as equities watch the USDX closely. A rising US dollar is typically regarded as bearish for commodities.

On the other hand, a weaker USD is generally considered more favorable for emerging market assets. Political crises on a global scale usually mean strength for the greenback. However, these relationships are generalizations that do not always follow a textbook pattern.

The Invesco DB US Dollar Index Bullish Fund (NYSE:UUP) has exposure to the US Dollar Index futures contracts that trade on the ICE Futures US exchange. The fund was launched in February 2007 and has about $467 million under management. Investors who are bullish on the US dollar would buy the fund.

UUP Weekly Chart.
UUP Weekly Chart.

Year-to-date, UUP is up about 2.4%. However, like the USDX, it is down about 0.4% in the past 52 weeks. UUP saw a 52-week high of $25.60 more than 11 months ago, on Sept. 25, 2020.

Meanwhile, the 52-week low of $24.09 came on June 1, 2021. Since then greenback bulls have had the upper hand until mid-August. But the uncertainty over if and when the Fed could taper its asset purchases has put pressures on the US dollar.

Understandably, if the Fed were to reduce debt purchases, there will be less cash in the financial system. As a result, the value of the dollar would likely go up. On the other hand, an accommodative Fed policy typically provides little support for the greenback.

Investors who expect the dovish stance of the Fed to end and the US dollar to go up in the coming weeks might consider buying UUP.

2. Invesco CurrencyShares Japanese Yen Trust

Current Price: $85.53
52-Week Range: $84.31 - $92.01
Expense Ratio: 0.40% per year

This ETF focuses on the yen, or JPY, the national currency of Japan, which has the world’s third-largest economy. The yen is also the most traded currency in Asia.

A large number of market participants see JPY as a safe haven, especially to hedge against a decline in prices of global equities. Put another way, whenever there is risk aversion worldwide, the yen typically strengthens. Thus, investors who want to keep their long equity portfolios might consider buying the yen as a potential hedge.

The Invesco CurrencyShares® Japanese Yen Trust (NYSE:FXY) tracks the returns of the Japanese yen. The fund began trading in 2007. Its net assets stand at $200.1 million.

FXY Weekly Chart.
FXY Weekly Chart.

So far in 2021, FXY is down 6.5%. The ETF hit a 52-week high in January and a 52-week low in July. The global USD strength earlier in the year has pushed FXY down. If the USD were to appreciate more, FXY could retest the July lows, and slide even further.

Investors who believe FXY could decline in the coming weeks might buy a put or initiate a bear put spread. More experienced traders could also consider short-term trades in ProShares UltraShort Yen (NYSE:YCS), an inverse and leveraged ETF, which seeks to achieve daily investment results that correspond to twice the inverse (i.e., -2x) of the daily performance of the price of JPY versus the greenback.

As Fed Tapering Concerns Dominate, 2 Currency ETFs To Participate In FX Moves
 

Related Articles

As Fed Tapering Concerns Dominate, 2 Currency ETFs To Participate In FX Moves

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email