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How to Trade the Turmoil In Italy

Mario Monti
Andreas Solaro| AFP | Getty Images
Mario Monti

Investors like Mario Monti. It's that simple.

And it's also too bad. After Monti, Italy's austerity-minded prime minister, announced Monday that he will resign in 2013, Italian bonds went into a tailspin and currency investors started fretting about the potential return of Silvio Berlusconi, the former prime minister.

"It seems like things stabilize in euro zone and then a new headline comes and introduces uncertainty again," says Amelia Bourdeau, director of foreign exchange at Westpac Institutional Bank. Unsettling news from Italy has particular impact, she adds, because "Italy is one of the countries that's been targeted by investors as perhaps needing a bailout in the future."

Then there is the contagion factor: uncertainty in Italy regularly leads to pain in Spain, Bourdeau told CNBC's Melissa Lee, since investors tend to lump the countries together.

Putting all that together, Bourdeau says it's time to sell the euro - but rather than sell against the dollar with a Federal Reserve meeting looming, she wants to sell against the safe-haven yen.

Bourdeau recommends selling the euro against the yen at 1.0650, setting a stop at 1.0750 and a target of 1.0400.

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