DBV is a thinly traded ETF that many may not know about. According to Yahoo Finance, the fund is comprised of long futures positions on the three G10 currencies associated with the highest interest rates and short futures positions on the three currencies associated with the lowest interest rates.
The G10 currency universe from which the index selects currently includes U.S. Dollars, Euros, Japanese Yen, Canadian Dollars, Swiss Francs, British Pounds, Australian Dollars, New Zealand Dollars, Norwegian Krone and Swedish Krona.
Source: Yahoo Finance
Put another way, this fund is doing what everyone in the world is doing right now. It is buying high yielding Aussie Dollars and Euros and shorting low yielding currencies such as the Dollar and the Yen.
This fund may actually be useful in a different market, but in this market where the movement of the market is 100% correlated with the direction of the Dollar, I don’t think most investors need more carry trade exposure since investing in U.S. stocks is carry trade exposure (the carry trading being the purchase of high yield currency and shorting low yielding currency).
In terms of watching for the unwind of the carry trade (which will likely mean a correction in the market), it is nice to have this ETF as a double check against your favorite Dollar tracking index ($DXY, UUP, UDN $USDUPX, etc.)
I have mentioned in prior posts that I am closely watching the 50-day SMA on the Dollar tracking indexes. If we see a breakout on the Dollar tracking indexes, it would provide a great deal of confidence to also see a breakdown on DBV at the same time to confirm the Dollar’s rebound. I don’t plan on trading DBV, but I do have it on my watchlist.
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