Euro ETFs Move On The ECB Moves

European Central Bank President Mario Draghi affirmed his commitment to a stimulus program, making it clear that the ECB is ready to increase the current stimulus package if needed. The announcement sent the Euro tumbling to a two-year low.

It fell 0.6 percent to 1.240 and touched 1.239 a level it has not traded at since August of 2012. A combination of a tightening policy by the Fed and loose monetary policy by the ECB has resulted in an extremely strong dollar against the euro.

European economic conditions have been declining for months, with stagnant growth and declining prices. The slide in the euro Thursday was not a huge surprise as Draghi was hinting towards the move for weeks. The currency market,however, may not have expected Draghi and the ECB to be so forthcoming with their willingness to increase their existing stimulus package.

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Highlighted below are ETFs that may be affected by the declining euro and its proportionate strength against the dollar.

The Rydex CurrencyShares Euro Trust ETF FXE tracks the euro, which is the currency of 17 European Union countries and the second-most traded currency in the world. FXE began its decline in May and lasted through the summer before the bleeding seemed to have stopped in October after a 10 percent decline. The sell-off resumed again the last couple of weeks as the ECB and Draghi made it clear they would not be scared to increase their current stimulus package.

The WisdomTree Europe Hedge Equity ETF HEDJ provides exposure to European equities while shorting the euro. The top three holdings in the fund are Anheuser-Busch InBev at 6.5 percent, Telefonica SA with a 5.9 percent holding and Banco Bilbao Vizcaya Argentari SA coming in at 5.1 percent. HEDJ is up 3 percent over the last 12 months and down 2 percent over the last six months.

In comparison to the iShares S&P Europe 350 Index Fund ETF IEV, which invests in European stocks without the euro hedge, is down 3.8 percent over the last 12 months and 12 percent over the last six months. The short euro aspect of HEDJ may provide investors with an extra boost in Europe’s current economic environment.

Investing in European equities and currencies seems like a rather unnerving thought at this time, and it would be wise to expect more volatility over the next couple months. However, European equities seem to have found a bottom and the long-term investor may be able to find some value across the pond.