Take advantage of the volatility of Forex with these 2 specialized ETFs

The US Federal Reserve will raise rates several times this year, which will increase demand for dollars and lead to greater volatility in the global currency market. Therefore, many investors have turned to Currency Traded Funds (CETFs) to participate in these movements.

Higher interest rates are generally bullish for a particular currency. As a result, investors are increasingly positive about the. The . (DXY) has increased by more than 7.5% in the past 12 months and by 2.7% in 2022.

The Invesco DB US Dollar Index Bullish Fund (NYSE :), which offers exposure to dollar index futures, gained 6.3% over the past 12 months. The UUP tracks the value of the US dollar against a basket of six major world currencies, including the euro, the Japanese yen, the British pound, the Canadian dollar, the Swedish krona, and the Swiss franc. With over $ 935 million in assets under management, UUP is one of the largest foreign exchange funds.

UUP - Weekly chart

UUP – Weekly chart

Today’s article, however, focuses on CETFs in Japanese yen.

The Japanese Yen, or JPY (¥), is widely followed as it is considered a safe haven currency and a hedge against a possible decline in equity markets around the world.

Most of our readers know that the exchange rate between the greenback and the yen indicates the number of yen per 1 US dollar. As we prepare to report, the is around 121.71, a multi-year high.

USD / JPY weekly chart

Invesco CurrencyShares confidence in Japanese yen

  • Current price: $ 77.42
  • 52-week range: $ 77.42 – $ 87.58.
  • Expense ratio: 0.4% per year

The fund we focus on today, the Invesco CurrencyShares® Japanese Yen Trust (NYSE :), offers a simple investment strategy suited to yen backers. It provides direct exposure to the yen and follows its price against the dollar. FXY increases as ¥ appreciates.

At the moment, the fund would be more suitable for those who are bearish on the yen, at least in the short term. FXY was launched in February 2007 and has a net worth of $ 174.8 million.

FXY Weekly Chart

Expectations for further US interest rate hikes have put the FXY under pressure. This CETF, which is currently trading at a multi-year low, has fallen nearly 5% year to date (YTD) and 10.7% over the past 12 months.

The yen generally strengthens when risk aversion increases around the world. Therefore, supporters of the yen who think the currency is oversold or those who expect greater volatility in global equities may find FXY attractive.

Short-term yen backers might also consider a leveraged CETF, such as the ProShares Ultra Yen (NYSE :).

YCL - Weekly chart

YCL – Weekly chart

With an expense ratio of 0.95%, this fund aims for a daily investment performance that is twice (2x) the price of the yen against the US dollar. It is down 9.5% since the beginning of the year and 20.2% compared to last year.

Finally, despite the yen’s recent decline, some investors may feel there is still room for the downside. After all, the Fed’s hawkish stance could create headwinds for the greenback and push the YCL even lower.

These yen bearers could use a leveraged and inverse ETF, namely the ProShares UltraShort Yen (NYSE :). As the name suggests, this CETF provides daily returns that are twice (-2x) the spot rate of the Japanese yen against the greenback. It has returned nearly 22.5% in the past year and has risen 10.7% since January.

YCS - Weekly chart

Due to the uncertain global outlook, it is difficult to predict the performance of the USD / JPY in the coming weeks. However, we expect the yen to rebound against the dollar in the short term. However, rising US interest rates should keep the yen under pressure in the coming months.

One final note: leveraged or inverse funds are not suitable for most long-term retail traders. Those who hold leveraged ETFs for more than one day can be exposed to significant risks.

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