How to Trade a Government Shutdown
With just hours to go before the federal government could shut down, here's how to trade this very unusual event risk.
Rebecca Patterson, global head of currencies and commodities for J.P. Morgan's private bank, says the dollar is taking a beating because of what's happening (or not happening) in Washington. She says, "The dollar is selling off because people are nervous about the fiscal situation and our politicians willingness to deal with it."
Noting the last time there was a government shutdown in 1995 and '96, the dollar fell big time mostly because foreign investors – led by the central bankers – said ‘no thank you’ to the tune of a $11 billion sell-off during that shutdown.
She says "IF" there is a deal tonight or even over the weekend (and that's a very big IF), be prepared to make your move on Monday and then be ready move quickly because there aren't too many investors swooning over the greenback.
Her best trade, look at the dollar/yen. Patterson sees the dollar dropping some more and likes the trade at $84 with a target of $86 and if you're looking for some cover, protect yourself with a stop-loss at $83.20.
Andrew Busch, global currency and public policy strategist for BMO Capital, doesn't see any hope - not even a glimmer - of avoiding a shutdown, and that's not even his biggest concern.
As he wrote in earlier this week and as he told CNBC's Melissa Lee, it's going to get a lot worse. "The lack of agreement on 2011 budget will shut down government for a short period of time, but could be as long as a month. The debt ceiling fightwill last longer and perhaps all the way until July 4th."
MULTI CURRENCIES v The Dollar
Tune In: CNBC's "Money in Motion Currency Trading" airs on Fridays at 5:30pm.
"Money in Motion Currency Trading" repeats on Saturdays at 7pm.