We think there is room for currencies in an asset allocation program. The Euro, Yen and US Dollar are key currencies to consider.We favor direct spot FX for currencies and secondarily currency futures. However, for those who do not have or want FX or futures accounts, there are currently ETF and ETN products available to participate in currencies. They are not particularly liquid and are, in our opinion, a poor third choice.
The two EURO products are (FXE) (Rydex Currency Shares ETF) and (ERO) (Barclays ETN). They are poor choices due to low trading volume with consequent delayed execution and high fund expenses compared to spot FX or futures. FX, for example is a $3 trillion per day market, of which the Euro is a significant part, compared to daily trades for FXE and ERO totally less than $15 million.
The 15+ year monthly Euro/US Dollar chart below shows the current exchange rate to be roughly the same as other prior peaks in 1995 and 2005. That may suggest there is more downside potential for the Euro than upside at this point. [dates prior to the rollout of the Euro are synthetic rates based on the currencies that converted to the Euro]
