Twelve For '12: Currency ETFs to Watch In The New Year

For the bulk of 2011, the currency conversation has revolved around three of the majors: The U.S. dollar, the euro and the yen. The euro's deal is widely known at this point. Problems with the PIIGS have imperiled the common currency, almost guaranteeing the Euro Zone will be lighter by a member or two sometime in the not-too-distant future. On the other hand, a strong yen has imperiled Japan's exporters, but given investors at least one other option that fits the bill as a “safe haven” currency. And despite massive debt problems of our own and a lower credit rating here in the U.S., the greenback will likely end 2011 with its safe haven status well in tact. Obviously, there's much more to the forex game than the “big three,” so let's look at the currency ETFs investors need to know about for 2012. ProShares UltraShort Euro

: Since the ProShares UltraShort Euro is a leveraged ETF, we don't advise making a long-term investment out this fund, but it should be a regular a part of an active trader's 2012 trading plan. Morgan Stanley sees more pain for the Euro ahead with a recommendation to sell EUR/USD at 1.3670 – target 1.2100. There you have it. CurrencyShares British Pound Sterling Trust

: Oh, sterling. Things aren't looking so sterling, are they? At least not a technical basis. The chart of the CurrencyShares British Pound Sterling Trust shows a series of lower highs and lower lows and if the the ETF breaks support at $154, the party could be over. Morgan Stanley says sell GBP/USD at 1.5830 – target 1.4200. CurrencyShares Canadian Dollar Trust

: This isn't a call on Canada at large as much as it is stating the obvious: The loonie is a commodity currency and the commodity it's linked to is oil. For those looking for oil exposure that isn't a direct greenback play, the Canadian dollar makes sense. WisdomTree Dreyfus Brazilian Real ETF

: The WisdomTree Dreyfus Brazilian Real ETF isn't the most heavily traded forex ETF out there, but it is the one fund that will get you direct exposure to this high-beta emerging market currency. There are a some macro factors at play with the real. Europe's sovereign debt crisis has created diminished appetite for riskier currencies. If China's economy slows further, that means demand for Brazilian commodities will slow along with it. After consistently raising rates, Brazil's central bank looks poised to start lowering interest rates. None of those scenarios are good for the real. CurrencyShares Mexican Peso Trust

: The Mexican peso has been punished on the way down this year and lazy on any rebounds, making for a disappointing year. More trouble could be on the way, as Morgan Stanley says: “...with no signs of a near-term respite from Europe debt concerns, we suspect that further weakness is in store for MXN through year-end and into 1Q12.” CurrencyShares Swedish Krona Trust

: A large of the Swedish investment thesis is that the country is NOT a Euro Zone member, but that has not insulated the CurrencyShares Swedish Krona Trust from some declines of its own over the past few months. The krona's fundamentals are strong. Sweden's economy is good compared to many others in Europe. The government has no need for foreign funding. And Sweden has excellent credit and an account surplus. Maybe FXS will outperform next year. CurrencyShares Swiss Franc Trust

: The chart of the CurrencyShares Swiss Franc Trust is not attractive at all when considering the ETF was trading near $140 back in August and is now under $108. FXF could be offering some value again as Morgan Stanley sees the franc outperforming the U.S. dollar and the euro through the second half of next year. WisdomTree Dreyfus Emerging Currency ETF

: The WisdomTree Dreyfus Emerging Currency ETF currently rests about 10% of its highs for the year, but bigger things could be in store in 2012 as the credit ratings of more emerging markets improve. The ETF is home to the following currencies: Mexican Peso, Brazilian Real, Chilean Peso, South African Rand, Polish Zloty, Israeli Shekel, Turkish New Lira, Chinese Yuan, South Korean Won, Taiwanese Dollar, and Indian Rupee. Nearly 42% of CEW's weight is devoted to Asian currencies and the ETF has a distribution yield of almost 4%. That's a lot better than you'll get with a money market account. PowerShares DB G10 Currency Harvest ETF

: DBV is the carry trade ETF as it looks to short the lowest interest rate G10 currencies while being long the highest interest rate currencies in the 10-country group. That group is as follows: U.S. Dollars, Euros, Japanese Yen, Canadian Dollars, Swiss Francs, British Pounds, Australian Dollars, New Zealand Dollars, Norwegian Krone and Swedish Krona. For example, DBV is short the U.S. dollar and yen, but long the Australian and New Zealand dollars. CurrencyShares Australian Dollar Trust

: Speaking of the Australian dollar, there is the CurrencyShares Australian Dollar Trust, an ETF that is almost as volatile as the currency it tracks. The Aussie dollar is the epitome of a high-beta commodity currency. It thrives when the risk on trade is on. When risk on is off, the Aussie dollar languishes. Morgan Stanely sees external, not domestic factors driving the Aussie dollar next year. ProShares UltraShort Yen

: By including YCS on this list, we're not saying short the yen. Rather, look to short YCS from time to time because the Bank of Japan is all but out of options for weakening the yen . PowerShares DB Dollar Bullish

: It's not the dollar is so great, it's that it's less bad than many of the other currency majors. It's probably the one true safe haven left as well. Want a risk off trade? Here it is, folks. “In general, when the rest of the world is not outperforming, ‘bad news' in the US will be more supportive for USD in the flight to safety. We believe that USD can only reverse trend when global conditions improve, which we do not expect to see until end-2012 and 2013,” Morgan Stanley said in a note.