Euro Bulls Are Alive and Kicking. Just Follow the Fund Flow

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(Bloomberg) -- Investors in Europe are piling into an exchange-traded fund with an embedded bet that the euro will climb, despite skepticism in the options market that the shared currency will get jolted back to life anytime soon.

The iShares S&P 500 EUR Hedged UCITS ETF, which benefits from a strengthening euro, was among the most popular stock products in Europe yesterday, taking in at least $49 million, its largest inflow since February.

Buyers of the passive vehicle are taking a bullish view on U.S. equities, which last week eked out their largest weekly gain since March. But they’re also protecting against the possibility that an appreciating euro will erode returns once converted back from the dollar -- something vanilla S&P 500 funds don’t do.

That’s despite the fact that more euro bulls have gone temporarily into hiding, for now. Bearish sentiment has climbed to a two-month high, according to options markets, as political woes over Italy’s next government add to concerns over slowing growth in the region and the dollar also benefits from rising U.S. yields. While futures markets still show bullish positioning, it’s flatlined since the start of the year.

Doubts over whether the European Central Bank will be able to tighten policy as early as previously thought have sent the shared currency down 1.7 percent this year.

©2018 Bloomberg L.P.

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