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How to Trade a Chinese Recovery

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Other big economies may be stuck in the doldrums - I'm talking to you, euro zone - but if the past week's report on exports is any indication, China is back on the fast track.

The thing is, plenty of key reports are about to be published, so China watchers will have a lot to sort through before the outlook becomes clear.

In the coming week, "the focus is going to be on thatfourth quarter GDP report" says Rebecca Patterson, chief investment officer at Bessemer Trust. If that number is solid, and jibes with other reports on retail sales, industrial production, and fixed asset investment, "then the stars really align and you're going to Chinese related assets take off."

The way to play that with currencies, Patterson told CNBC's Melissa Lee, is with the Australian dollar. China is Australia's largest trading partner, so she wants to buy the Aussie against the U.S. dollar on a pullback.

Patterson recommends entering the trade at 1.0500, setting a stop at 1.0350 and looking for a move to 1.1000. "We have some levels to get through to get to 1.1000, but if we can keep seeing China recovering, the U.S. Washington stuff is not a complete disaster, risk appetite can stay intact, I think we can see that over the next few months."

Todd Gordon, co-head of research and trading at Aspen Trading Group, is also watching the Aussie. He points out that "we have not yet closed above weekly resistance" at 1.06, but as one of the strongest currencies in the G10, he thinks the Aussie has upside potential. "I will be long wiith you, but we need to see a weekly 1.06 close to get this train going."

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Learn more: The essential vocabulary for currency trading is on Key Terms Dictionary. Top currency strategies are broken down for you in Currency Class.

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