On a relatively quiet week for stocks with the Thanksgiving holiday, it provides a great opportunity to look at an investment alternative--currency ETFs. Currency ETFs provide traders and investors with an easy way to gain exposure to the currency markets, providing independent opportunities (and risks) which can help diversify portfolios and trades. Like other investments, currencies change price based on supply and demand, driven by fundamental and technical factors. These four popular currency ETFs currently have compelling technical opportunities.
CurrencyShares Euro Trust (ARCA:FXE) is currently hugging the lower part of a trend channel it has traded in since July. The price needs to break above $134.50--the upper trendline of a small channel which began three weeks ago--in order a trigger a likely test of the larger channel band at $138 to $139. There is another possibly though. The move lower in late October and early November was quite strong, indicating the uptrend may be over, and this small channeling move higher over the last few weeks is actually a bear market rally. If that's the case, a drop below $133 sets up a shorting opportunity, with a stop loss above the recent high and a target of $131.50, followed by $129.50 if the price falls through the former.
CurrencyShares British Pound Sterling Trust (ARCA:FXB) is consolidating just below the yearly high at $161.32. Since the start of October the ETF has created multiple peaks near the $160 region. Given that the ETF is in a long-term range this is a likely topping pattern; confirmed if the price drops back below $156.50. The next target in that case is $154 but the price could retrace all the way in to the the high $140's over the long-term. If the price tries to break through $160, but is unable to hold above the level, that is also an early warning sign and potential shorting opportunity. The trend is currently up though, so a strong close above $160 signals a breakout and a continuation of the uptrend toward $163 to $164.
CurrencyShares Japanese Yen Trust (ARCA:FXY) broke lower out of a triangle pattern earlier this month, indicating a continued slide lower. The target for the downside triangle breakout is approximately $90. There is support though at the yearly low of $94.38 which the price will need to get by in order to reach the target. On the other hand, a rise back above $100 indicates the downside breakout was false, and the price will likely rally, recouping much of the losses seen this year.
CurrencyShares Canadian Dollar Trust (ARCA:FXC) is currently bumping up against a support region between $94 and $92 which has been tested multiple times over the last four years. A continuation lower indicates a long-term downtrend in the Canadian dollar is underway. If support holds though, a rally above the recent high and short-term trendline at $95.50 indicates a test of the longer-term trendline resistance at $96.25. A rally beyond that signals that the Canadian dollar will continue to move higher toward the $100 mark which is near the mid-point of the four year range it has traded in.
The Bottom Line
Currency ETFs provide an alternative investment category to traders and investors. Currencies trade 24-hours during the week, so currency ETFs which only trade while the stock market is open are susceptible to daily price gaps. Be sure to read a currency ETF prospectus before trading these instruments if you are unfamiliar with currency risks. There are compelling opportunities in currency ETFs, as these markets are not always highly correlated with stocks. The currency ETFs discussed have a 0.40% expense ratio and are trading within $0.20 of there Net Asset Value (NAV), which means the ETFs are fairly valued when compared to the assets held within the currency trusts.
Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.