As the euro continues to strengthen, Mario Draghi’s policy monetary draws criticism.

Commentators are biting their nails as the euro continues its unrelenting climb.  With the Eurozone sloughing through a recession, a weakened currency inflates the prices of the region’s exports in overseas markets, creating a competitive disadvantage.  Beyond that, the value of the yen keeps sinking, making the situation exponentially worse.

When European Central Bank President, Super Mario Draghi intervened to rescue the currency with his July, 2012 promise that he would “do whatever it takes” to save the euro, did he underestimate the consequences of such an effort?  Many critics have focused on how the “Draghi put” has created a false sense of confidence in the Eurozone economy.  Widespread assumption that the ECB and Super Mario can fix any economic problem which arises, appears to be creating a “bubble” mentality.  At the same time, Draghi continues to insist, as he did at the World Economic Forum in Davos on January 25, that member countries – particularly Spain, Italy and Greece – must take responsibility for “fiscal consolidation” (i.e. economic austerity) to keep their deficits in line.  With one step Draghi plays sugar daddy and with another he does the talk of a strict parent.  This is Draghi’s Dance.  EUR/USD Hits 14-month High on U.S. Jobs

The chart below depicts the trading activity in the CurrencyShares Euro Trust ETF (NYSEARCA:FXE) during the past 180 days (Chart courtesy of Stockcharts.com).

FXE finished Friday’s trading session at $135.49.  Since January 30, FXE has been in the “overbought” range and its Relative Strength Index finished the week at 76.15.  The chart depicts an inverse head-and-shoulders pattern (from mid-October through mid-December) followed by a smaller inverse head-and-shoulders, which sent it past the psychologically-significant $135, which has yet to provide overhead resistance.  Time to Hedge Euro Risk?

Currency ETF Update: 

The following is a summary of how currency indices and ETFs performed from the close on Friday, January 25 until the close on Friday, February 1:

$US Dollar Index:  $79.12   -0.78%

PowerShares DB US Dollar Index Bullish Fund ETF (NYSEARCA:UUP):  -0.82%, This ETF reflects US dollar performance as indicated by the Deutsche Bank Long US Dollar Index (USDX) Futures Index (DB Long USD Futures Index).  The USDX Index invests solely in Long USDX Futures Contracts, and compares the performance of the US dollar against the Japanese Yen, the Euro, the Swiss Franc, the British Pound, the Canadian Dollar, and the Swedish Krona.

Euro Dollar Index-Philadelphia: EUR:  $136.41   +1.34%

CurrencyShares Euro Trust ETF (NYSEARCA:FXE):   +1.46%, This ETF is designed to track the performance of the Euro dollar.  CurrencyShares Euro Trust ETF (NYSEARCA:FXE) is a trust denominated in Euro dollars, and the depository bank is JP Morgan Chase Bank, N.A. London Branch.

ProShares UltraShort Euro ETF (NYSEARCA:EUO):  -2.96%, This ETF tracks the 2X inverse daily performance of the Euro dollar in US dollar prices.  The ProShares UltraShort Euro ETF (NYSEARCA:EUO) relies on the EUR/USD cross rate as determined by Reuters by 4 PM EST to determine the price of the Euro in US dollars.

Australian Dollar Index-Philadelphia: AUD: $104.07   -0.07%

CurrencyShares Australian Dollar Trust ETF (NYSEARCA:FXA):  -0.40%, This ETF is designed to track the performance of the Australian dollar.  The CurrencyShares Australian Dollar Trust ETF (NYSEARCA:FXA) is a trust denominated in Australian dollars, and the depository bank is JP Morgan Chase Bank, N.A. London Branch.

CurrencyShares Swiss Franc Trust ETF (NYSEARCA:FXF)  +2.12% This ETF is designed to track the performance of the Swiss Franc.  The Swiss franc is the national currency of Switzerland and Liechtenstein and the currency of the accounts of the Swiss National Bank, the central bank of Switzerland. The Swiss franc is the sixth-most-traded currency in the world, accounting for 6.4% of global foreign exchange transactions. The USD/Swiss franc pair is the fifth-most-traded currency pair.

Japanese Yen Index–Philadelphia: JPY:  $107.79  -2.16%

CurrencyShares Japanese Yen Trust ETF (NYSEARCA:FXY):  -2.09%   This ETF is designed to track the performance of the Japanese Yen.  The CurrencyShares Japanese Yen Trust ETF (NYSEARCA:FXY) is a trust denominated in Japanese Yen, and the depository bank is JP Morgan Chase Bank, N.A. London Branch.

Bottom Line:  As the euro continues to climb, the monetary policy of ECB president Mario Draghi is drawing criticism, as the consequences to the region’s export business could prolong the Eurozone’s ongoing recession. 

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About John Nyaradi (http://www.wallstreetsectorselector.com) John Nyaradi is Publisher of Wall Street Sector Selector: Your Home For ETF Investing! John writes a weekly guest column, John Nyaradi’s ETF Edge for MarketWatch.com and his investment articles have appeared in many online publications including Trading Markets, Money Show, Yahoo Finance, Investors Insight, Fidelity, ETF Daily News, iStock Analyst , among many others. His book, Super Sectors: How to Outsmart the Market Using Sector Rotation and ETFs, is published by John Wiley and Sons and included among the Years Top Investment Books in the 2011 Stock Trader’s Almanac.