ETF Expert

We think we’ve got it bad? The growth forecast for the U.S. economy in 2010 is 2.5%. Forecasts for Japan and Europe? 1.4% and 1.2% respectively.

Unemployment in the U.S. is expected to surpass 10%. Meanwhile, the Eurozone also plays the 10% unemployment card. Yet the weak U.S. dollar is helping U.S. manufacturers, U.S. exporters and U.S. multinationals. The strong euro is mauling European exporters and European manufacturers.

Well… investors are increasingly diversifying into euros, you say. Perhaps someone should retort, “Yeah, but for how much longer!”

Let’s face it, the super-strong eurodollar is killing the Eurozone. For instance, the euro area had a $16 billion trade surplus in July. By August, its exports had plummeted 6% with nearly a $6 billion trade deficit. In brief, what countries can afford to buy stuff from Europe at these prices!

Japan is having a similar problem with the strength of its yen. However, the Japanese practically invented the “weak currency” policy. The yen is more likely to stay somewhat stable, if not depreciate, because Japan is one of the most export-dependent nations on Earth.

On the other hand, the Eurozone is more diverse… and not everyone agrees on what to do. The only “given” is that the euro is trading near record highs at a time when the Eurozone can’t afford to see the euro get much stronger.

CurrencyShares Euro Trust (FXE) is in a technical uptrend, above 50-day and 200-day moving averages. The same is true for the CurrencyShares Yen Trust (FXY).

And yet, there’s not much the European central bank can do to devalue its currency. It might be able to knock down target rates from 1% to 0%-0.25% like the U.S. and Japan; however, this won’t put an end to world powers diversifying away from the U.S. dollar and into yen, euros and other currencies.

Nevertheless, we come back to Roubini’s comment, “The U.S. dollar can’t go down forever.” This makes it all the more critical to watch the CurrencyShares Euro Trust (FXE). If it falls below a trendline… if the euro weakens and/or the U.S. dollar finds itself strengthening against a basket of world currencies… the investment environment could change in a hurry.

(Note: If the U.S. dollar jumps… which ETFs could get hit the hardest?)

If you’d like to learn more about ETF investing… then tune into “In the Money With Gary Gordon.” You can listen to the show “LIVE”, via podcast or on your iPod.

Tags | "etf economy", "etf yen", "etfs currency", "Euro ETF", Currency ETFs