EUO: Profit as The Euro Plunges

The Euro, currently used by 22 countries, is one of the most important world currencies. It was introduced to global financial markets in 1999 and reached major-currency status in record time. The Euro is now the second-most heavily traded currency in the foreign exchange (forex) market next to the dollar.

Now the Euro is in trouble. Greece’s dire fiscal problems have roiled the global markets as we mentioned in last week’s update.  Many investors are wondering how they can profit from the Euro’s decline. Experienced currency traders use a forex account and short the currency directly, but there are other options. ETFs have made currency investing available to retail investors. One way to play the Euro bear is UltraShort Euro ProShares ETF (EUO).

EUO is a leveraged play on the Dollar/Euro currency rate and therefore an inverse leveraged play on the Euro/Dollar exchange rate. This ETF attempts to provide twice the daily inverse performance of the Euro against the greenback. If the Euro stays in the crosshairs of so many bearish traders, EUO could generate nice returns in a short time.

A falling Euro seems like a good fundamental bet at this point. In mid-January EUO broke above short-term resistance and has since climbed nearly 10%. There’s a reason. Greece and other countries are having trouble servicing enormous public debts and may have to default. Yes, Greece is a relatively small economy, dwarfed in size by California, Texas and New York City. But the numbers are still big enough to create big problems.

Let’s assume for a minute that somehow Greece is bailed out, a prospect that appears murky at best. Yes, that might mean some short-term pain for EUO, but several other members of the Eurozone have equally dubious fiscal pictures. Portugal, Ireland, and Spain pose similar problems. Smaller countries that use the Euro like Slovenia and Slovakia, add risk to the common currency. The Euro’s bullish prospects going forward are scant.

Plenty of potential catalysts could make EUO a rewarding intermediate-term investment. Given that the current market environment does not favor risk-taking, EUO might be the safest Euro bet to make. To profit from a struggling European currency, short the Euro with EUO.

Disclosure covering writer, editor, publisher, and affiliates: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.