Stocks dropped lower across the board on Wednesday as profit-taking pressures crept in after the latest Fed Beige Book reignited fears of fading stimulus hopes. The latest regional economic report revealed the U.S. economy advancing at a “modest to moderate” pace, which sent many running to the sidelines as investors weighed the possibility of the Fed scaling back on bond repurchases at the next policy meeting in June. In other economic news, ADP employment data came in above last month’s reading while Factory orders came in slightly below analysts’ expectations [see also The Cheapest ETF For Every Investment Objective].
Our ETF to watch today is the CurrencyShares Euro Currency Trust (FXE, A), which could see volatile trading at the opening bell as investors react to the overnight European Central Bank rate decision. Analysts are expecting for the benchmark rate to remain unchanged at 0.50%, although economic commentary following the decision itself could spur trading activity.
Consider FXE’s one-year daily performance chart below. FXE appeared to be in steep uptrend at the end of 2012 as it had managed to bottom out just below $120 a share and went onto climb higher along a steeply rising support level (blue line). However, bullish momentum seemingly evaporated after peaking at $136 a share earlier this year as FXE went onto break below its trendline and re-test support at its 200-day moving average (yellow line) in a matter of two months. Despite its lackluster performance thus far on the year, FXE still offers hope for a recovery seeing as how it has managed to rebound off the $127 level (green line) on two occasions over the last few months, perhaps signaling that this is now the fund’s definitive support level [see Foreign Currency Risk 101: What Investors Need To Know].
There is a piece of bearish evidence that takes away some of FXE’s bullish luster; notice how this fund has struggled to summit the $131 level (red line) on several occasions over the last month [see also 101 ETF Lessons Every Financial Advisor Should Learn].
If the latest ECB commentary is optimistic, FXE should have the wind at its back on the day; in terms of upside, this ETF will likely face stiff selling pressures as it nears resistance at the $131 level. Likewise, if European policymakers strike a pessimistic note with investors, FXE could encounter selling pressures; in terms of downside, this ETF has major support at $127 a share. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.
Follow me on Twitter @SBojinov
[For more ETF analysis, make sure to sign up for our free ETF newsletter]
Disclosure: No positions at time of writing.