If you buy something like FXE (the big Euro/USD ETF), then it is just a US-listed equity and is taxed stateside, no implications.
If you use something like 6E euro futures, then they’re US-registered futures contracts and again are taxed as such, sec1256 contracts.
If you say get an IB account and straight up buy EUR and hold EUR, then this is arguably a section 988 transaction, which means any gains/losses are treated as ordinary income. IB might or might not note it on your 1099s as reportable income.
If you go and buy a EUR-denominated ETF in IB or fidelity, then yes, it’s just another security transaction, and since your broker is US-based, they should handle the currency conversions and report it to you on 1099-B accurately. You might want to check to be sure but I can’t imagine any stateside broker that is allowing the foreign transactions doesn’t have the accounting in place.
If you put your money in Bison Bank, and sit and hold it, it’s still theoretically sec988, but in reality no one’s going to say boo about it.
If you put your money in Bison Bank, then go buy EU-listed equities, or especially bonds, God help you.
You can also use a dedicated FX platform like OANDA or FXAll, which focuses on currency trading, and hold EUR that way. The spread will be trivial, and the costs will be very spelled out and exact. This will count as sec 988 but sec988 isn’t mark to market, it just means your gains/losses are ordinary not capital. Note that this cuts both ways. A capital loss is subject to the 3000/yr limit and 3-yr lookback. Ordinary losses come straight off your income in the year realized. So you could call it tax disadvantaged on gains but tax advantaged on losses.
The bigger thing you need to consider is that hedging is not a free activity. You will pay anywhere from 0.5% to 2% annually to hedge, just as straight up fees, unless you put the EUR in a bank account and sit on it (in which case you’ll probably pay custodial fees if you’re operating in any size). Then there is interest rate differential - if you put the USD in a bank, you can make 1%; you won’t be getting that. If you keep > 100k EUR almost anywhere, you will probably PAY 0.5% interest for the privilege of holding EUR because short term interest rates in the EU are negative. Thus, holding EUR vs holding USD is really costing you 1.5% on top of carry/slippage.)
You might make money on the hedge. You will pay money long term on holding the hedge. This math may, or may not, work out in your favor.
I’ve hedged, some. Given that by and large EUR/USD tend to trade in a range, if you’re considering it from a 5yr horizon, your likely gain/loss is ~20% - against which you will pay a hedge cost of at least 7.5%. Granted, all this is just projecting the current into the future, but I’m really unclear that the win is there. If you believe the dollar is going to die, then obviously your view of the relative costs/risks are different. (No judgment. I used to feel that way. Now, I simply admit to not knowing.)