If you're looking to gain currency exposure, currency trusts and ETFs provide a way to do it. The CurrencyShares Euro Trust (ARCA:FXE), CurrencyShares Japanese Yen Trust (ARCA:FXY), CurrencyShares Australian Dollar Trust (ARCA:FXA) and the Wisdom Tree Emerging Currency Fund (ARCA:CEW) are among the most popular currency ETFs - there are 38 total - with average volume over 130K shares per day. Here's the technical outlook for these currency ETFs.
The CurrencyShares Euro Trust started a long-term downtrend in 2008, but currently is in the middle of an intermediate trend higher. The uptrend should take the form of a five wave pattern - three waves up and two down - and so far we have seen two of those up waves. The second down wave is currently underway and should find support before $126. As long as the pair holds above that, I like the bullish trade as the third up wave (fifth total) should kick in providing a target of approximately $138. A drop below $126 signals potential trouble and possible test of $120.
CurrencyShares Japanese Yen Trust continues to decline, after peaking in mid-2011. A drop below the March low at $101.57 signals further declines are likely to develop. For the bullish case, increasing overall volume and volume spikes nearing 2.5M shares on the weekly chart have typically foreshadowed at least a short-term reversal over the weeks that follow. March has seen such an increase, indicating a short-term push higher could be coming in April. A rise above $108 opens up the potential for a larger rally, potentially into the $116 to $118 area.
CurrencyShares Australian Dollar Trust is moving within a complex correction pattern since mid-2011, but is nearing a breakout point. If the trust can rally above $105.50 it will break a downward sloping trendline which began in August 2011, signaling the next potential advance. The shorter-term target, should the breakout materialize, is $110.50 while longer-term the breakout indicates a target of $119 to $122.50. The $101.50 region is support; a drop below it is likely to result in the correction pattern continuing and the trust declining toward primary support between $97 and $94.
Wisdom Tree Emerging Currency Fund is currently in correction mode amid an uptrend which began in mid-2012. $21 to $20.50 should provide a strong support, giving those that are bullish an opportunity to buy with a stop-loss order just below $20.50. The trust hasn't moved above $21.35 since March 2012, so a rally above that signals another leg higher in the uptrend with a target of $21.75. If the ETF drops below $20.50, further downside is likely to develop.
The Bottom Line
If you're looking to diversify your portfolio or capitalize on global currency movements, currency ETFs and trusts provide a way to do it. The Euro is setting up for a potentially upward move, while the Yen has paused amid a downtrend which could provide a shorting or buying opportunity. The Aussie dollar is near an upside breakout, but hasn't crossed the pivotal mark yet, and the emerging currency ETF is in a buy zone for those that are bullish on emerging currencies. Actual currencies trade around the clock, so these ETFs and trusts often gap higher or lower when the stock market opens. Be prepared for volatility due to global events which may arise and do further research on currencies and currency ETFs before investing, if you have questions about these products.
Charts courtesy of stockcharts.com
At the time of writing, Cory Mitchell did not own any shares in any company mentioned in this article.