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Amid rising speculation that a campaign led by prominent Republican economists and lawmakers to call on Fed Chairman Bernanke to cancel the QE2 program has been the prime mover to weigh heavily on US bond prices, US yields have seen some relief leading into Tuesday’s session by remaining well above their October lows. Meanwhile developments surrounding a possible bailout for Ireland remain the main driver for the euro. Although Ireland has made no official request for aid at this point, finance minister Lenihan has confirmed that talks with the EU, ECB and the IMF on aid for Irish banks will start tomorrow.

EUR - The Great Fall: EUR has weakened 5% since the Fed announced QE2 on November 3rd, falling from a high of 1.4282 on November 5th to yesterday's level of 1.3580. Some of this weakness has been EU centric, with the escalation of concerns over Ireland. However, it is also not that different than the reaction of the EUR to QE1.

Irish Concerns: The dollar rose against the euro as European finance ministers met in Brussels, while Ireland’s leader said the nation hasn’t applied for emergency assistance in addition to rising concerns over Greece's economic fitness. While Irish Prime Minister Brian Cowen said his government is holding discussions with European Union partners on issues affecting the euro, he denied that the Republic had made any application for a multibillion euro bailout from the EU. In any event the fact that European finance ministers, officials from the IMF and ECB have flown to Dublin for bailing out Ireland’s banks if the need arises, has seen the euro recover some ground after its recent losses.

GBP: Sterling has meanwhile come under selling pressure despite the release of strong CPI data putting the inflation rate above the BOE’s upper tolerance limit. Meanwhile, BoE Governor King maintained his view that spare capacity in the economy will place downward pressure on inflation.

Trends: Meanwhile analysts at Duetsche Bank have said that despite all the Irish concerns, the single currency appears quite resilient; granted, it has been falling for a week, but only marginally. This pattern suggests the presence of a long-term buying interest, especially given the eurozone’s current circumstances. We see the euro in consolidation, although the risk for further depreciation to 1.3550/60 still exists.

Euro ETFs to Watch Out For

  • Rydex CurrencyShares Euro Currency Trust (NYSEARCA:FXE): The EUR/USD exchange rate is a foreign exchange spot rate that measures the relative values of two currencies, the euro and the US dollar. FXE Tracks: Euro Index. Expense Ratio: 0.40%.

Short Euro ETFs:

  • ProShares UltraShort Euro (NYSEARCA:EUO): ProShares UltraShort Euro seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the US dollar price of the euro. EUO Tracks: Euro (-200%) Index. Expense Ratio: 0.95%.
  • Market Vectors-Double Short Euro ETN (NYSEARCA:DRR): As the Index is two-times leveraged, for every 1% weakening of the euro relative to the US dollar, the level of the Index will generally increase by 2%, while for every 1% strengthening of the euro relative to the US dollar, the Index will generally decrease by 2%. DRR Tracks: Double Short Euro Index. Expense Ratio: 0.65%.

Long Euro ETFs:

  • ProShares Ultra Euro (NYSEARCA:ULE): ProShares Ultra Euro seeks daily investment results, before fees and expenses, that correspond to twice (200%) the US dollar price of the euro. ULE Tracks: Euro (200%) Index. Expense Ratio: 0.95%.
  • Market Vectors-Double Long Euro ETN (NYSEARCA:URR): As the Index is two-times leveraged, for every 1% strengthening of the euro relative to the US dollar, the level of the Index will generally increase by 2%, while for every 1% weakening of the euro relative to the US dollar, the Index will generally decrease by 2%. URR Tracks: Double Long Euro Index. Expense Ratio: 0.65%.

Disclosure: No positions

Source: Weak Euro, Irish Bailout Hopes Drive Buying Interest