3 ETFs to Play the Weakening Dollar (2024)

Bitcoin may be stealing the headlines regarding currency movements of late, but the U.S. dollar has also made its own decently sized move recently. Although not making triple-digit percentage moves like its digital counterpart, the greenback has still slipped 2.4% against a basket of the world's major currencies since May 23 – a significant move for a safe-haven currency.

The dollar has come under pressure over the past month amid expectations of multiple interest rate cuts by the Federal Reserve. At its policy meeting last week, the Fed signaled that it was ready to reduce rates to offset slowing domestic growth and stagnant inflation. Federal-funds futures markets are pricing in a half-point cut this year and another 40 basis points in 2020. In fact, the futures market sees a 78.1% chance of a 25-basis-point cut at next month's Fed meeting, according to the CME Group's FedWatch site.

Analysts believe that falling U.S. bond yields and bearish technical indicators may create further headwinds for the dollar in the months ahead. "This has more legs to go," said Paresh Upadhyaya, director of currency strategy at Amundi Pioneer Investments in Boston, per CNBC.

Those who would like to gain short exposure to the dollar but don't want to open a foreign exchange account should consider using the three currency exchange-traded funds (ETFs) discussed below. Let's go over the finer details of each fund and utilize technical analysis to pinpoint possible trading opportunities.

Invesco DB U.S. Dollar Index Bearish Fund (UDN)

Launched in 2007, the Invesco DB U.S. Dollar Index Bearish Fund (UDN) seeks to replicate the performance of the Deutsche Bank Short U.S. Dollar Index Futures Index. The tracked benchmark measures fluctuations in the value of the euro, Swiss franc, Japanese yen, British pound, Swedish krona, and Canadian dollar relative to the U.S. dollar. UDN allocates 57.50% of its portfolio to the euro, making it particularly sensitive to movements in that currency. Traders will appreciate the fund's tight 0.05% spread and daily dollar volume liquidity of over $700,000. As of June 27, 2019, the fund has assets under management (AUM) of $32.94 million, charges a 0.75% management fee, and is up 1.70% in the past month. Investors also receive a 1.29% dividend yield.

The UDN chart flashed signs of waning seller momentum in late May when the share price formed a lower low as the relative strength index carved out a shallower low to form a bullish divergence. In early June, the fund's price broke above a long-term downtrend line, continuing its rise throughout the month to now trade above the 200-day simple moving average (SMA). Traders who buy here should set a stop-loss order below the June 20 gap and aim to book profits on a move to the September swing high at $21.55.

Invesco CurrencyShares Euro Currency Trust (FXE)

The Invesco CurrencyShares Euro Currency Trust (FXE), formed in December 2005, tracks the changes in value of the euro relative to the U.S. dollar. The fund holds physical euros, allowing it to virtually mirror the performance of euro/U.S. dollar exchange rate. Traders should be aware that the fund's physical deposits of euros aren't insured, which leaves shareholders directly exposed to default risk. FXE provides ample liquidity, trading almost 200,000 shares per day with an average spread of just 0.01%. Trading at $108.19 with net assets of $249.42 million and a 0.40% expense ratio, FXE has gained 1.58% over the past month as of June 27, 2019.

With UDN's significant exposure to the euro, it's not surprising that FXE's chart looks extremely similar. After breaking above a steep downtrend line and the 50-day SMA earlier this month, the price retraced to those indicators, which provided support for a push toward the 200-day SMA. Traders can either buy at the current price or wait for a convincing close above the long-term moving average – which at this stage, has provided resistance. Consider placing a take-profit order in the vicinity of the 52-week high at $113.14 and cutting losses if the fund's price closes beneath the June 20 doji candlestick low at $107.30.

Invesco CurrencyShares Canadian Dollar Trust (FXC)

The Invesco CurrencyShares Canadian Dollar Trust (FXC) is designed to follow the movements in the Canadian dollar against the U.S. dollar. The fund, which rebalances quarterly, provides direct exposure to the Canadian currency – also known as the loonie – by holding physical Canadian dollars in a JPMorgan Chase & Co. (JPM) deposit account. A razor-thin spread of 0.03%, combined with dollar volume liquidity of over $2 million most days, keeps slippage to a minimum and allows traders to go after small price movements. While not spectacularly cheap, the fund's 0.40% expense ratio remains competitive for those who intend on holding for more extended periods. FXC controls $118.64 million in assets, offers a 0.66% dividend yield, and has jumped 1.99% over the past month. Year to date, the fund has returned almost 4% as of June 27, 2019.

FXC shares rallied sharply in January before spending the next four months grinding sideways to lower. Sentiment changed in early June when the price gapped above both a downtrend line dating back to early 2018 and the 200-day SMA. Apart from a minor pullback mid-month, the fund has continued its upward momentum, indicating the possible emergence of a new uptrend. Because this may be the beginning of a move higher, those who take a trade may want to scale out of their positions – exiting half at the October swing high at $76.75 and the remaining 50% near the 2018 high at $79.85. Protect against downside risk by placing a stop order beneath either the June 21 low or under the 200-day SMA, depending on risk tolerance.