ETF Insider: Beware Of Lingering Euro Fears

Equity markets hit the ground running last week as investors came back from the holiday weekend with a fairly optimistic outlook for 2012. U.S. stocks started off the year with a solid rally as investors’ confidence was bolstered by multiple better-than-expected economic data reports; consistent improvements in the housing market coupled with a downtick in the unemployment rate were enough to reignite bullish momentum on Wall Street. Gold inched higher last week, climbing back over $1,600 an ounce, although the precious metal continues to face headwinds given the looming uncertainty stemming from the Euro zone.

Weekly Outlook

The coming week will be fairly busy with activity and economic data releases both at home and on the international front. Below, we highlight ETFs that may see an increase in trading activity as relevant market data is released and evaluated by investors:

• Van Eck Market-Vectors Chinese Renminbi/USD ETN (CNY): China’s consumer price index is scheduled to come out late Wednesday evening, which may cause CNY to experience volatile trading the following day. Analysts are forecasting for inflation to come in at 4%, versus the previous reading of 4.2%.
  
• iShares MSCI Germany Index Fund (EWG): This ETF may experience an increase in trading volumes on Wednesday as German GDP is released. Analysts are expecting for the Euro zone behemoth to report economic growth of 2.1% on a year-over-year basis.
• State Street SPDR S&P Retail (XRT): U.S. retail sales are slated to come out on Thursday morning, which may spark volatile trading in shares of XRT as investors digest results from the holiday shopping season. Analysts are expecting for 0.3% growth in retail sales, versus the previous reading of 0.2%.
• Rydex CurrencyShares Euro Currency Trust (FXE): The euro may see some wild swings on Thursday as investors digest the latest interest rate decision and economic commentary from the European Central Bank.
• State Street SPDR S&P China ETF (GXC): This ETF may experience a gap on Friday morning as investors react to the latest Chinese GDP report. Analysts are expecting for the economic giant to post economic growth of 8.6% year-over-year, versus the previous reading of 9.1%.
• Vanguard Total Bond Market ETF (BND): U.S. consumer sentiment is slated to come out on Friday morning and BND could see an increase in trading volumes if investors become worried about the economic condition at home. Analysts are expecting for the figure to come in at 73, versus the previous reading of 69.9.

Prospects for the U.S. economy in 2012 continue to gradually improve as encouraging economic data reports on all fronts are helping to restore confidence in the domestic recovery. Nonetheless, we expect that volatility will continue to plague the markets this year until the Euro zone crisis is resolved. Below, we have highlighted three technical trading ideas for the upcoming week. Note that most of these recommendations require active management as they are only relevant for a very short period of time. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.

Actionable ETF Idea #1: Long FXB