Euro vs US Dollar: Where Are We Going?
02/27/2015 12:01 am EST
For the week ahead, MoneyShow's Jim Jubak suggests looking at the euro vs. the US dollar and how the smart money seems to be going towards European stocks, but hedging it.
For the week ahead, euro dollar; where are we going? We've got a kind of inflection point maybe that we've got good news on the euro out of the EuroZone since the Greek crisis is over for four months, until June anyway, that will push the euro up.
We've got Janet Yellen telling the senate on February 24 that she's going to be even more patient than was thought so the market has decided we're probably not going to get a rate increase until September. That would push the dollar down.
On the basis of those two things, you've got a euro getting stronger, a dollar getting weaker, but you've also got the European Central Bank, Mario Draghi, going out there and starting revving up its one trillion euro program of asset purchases. Now the whole point of that is to drive down the value of the euro so that the EuroZone can import some inflation, it can get some growth out of cheaper export products. That ought to push the euro down.
You can see that you've got a number of different things going on here that say, well the euro should be getting more expensive, less expensive than the dollar, the dollar should be stronger. It's really, I think, pretty much up for grabs at this point.
I think that it still favors a strong dollar but it's not going to move against the euro very, very hard.
If you're thinking about looking around the world and trying to figure out where to put some money right now the money seems to be going toward European stocks; they're cheaper, there's the hope that the European Central Banks asset purchasing program will work, get more growth. It wouldn't be hard to get more growth since you're getting almost nothing out of all these economies.
What it looks like people are doing, looks like what the smart money is doing is buying into Europe but hedging it, hedging the currency. If you want to do that, if you want to follow that strategy, there are a number of hedged European ETFs that will give you exposure to the European market.
If, indeed, Europe looks like it's going to do well that would work and would protect you against the declining euro, and after all, the whole point of the Central Bank's economic policy to the degree that a bank has an economic policy, is to drive down the euro.
I think if you want to buy European stocks and you want to look for a way to profit off of the European recovery, if you believe that there's one in the works, I think it would be good to use a hedged ETF because your real risk there is currency risk.