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How to Trade the FOMC Meeting

Ben Bernanke
Ben Bernanke

Here we go, another FOMC meeting - except this is the last one before QE2's theoretical end. Here's how to trade it.

First, it depends what you think Fed Chairman Ben Bernanke will have to say.

"He's going to sound a little more cautious about the outlook," says Michelle Meyer, senior US economist at Bank of America Merrill Lynch. "But at the same time, I think he will reiterate that the baseline view is that growth snaps back in the second half of the year," she told CNBC's Melissa Lee.

Meyer does expect QE2 to end as planned, and she sees the Fed shifting to a neutral monetary policy.

So how do you use currencies to trade this?

Andrew Busch, global currency and public policy strategist for BMO Capital, went to the history books and found a pattern he wants to use.

Apparently, after the last three Fed meetings, spreads between US and Australian two-year interest rates widened, and the Australian dollar rallied. So this time around, Busch recommends buying the Australian dollar and selling the greenback on the day of the FOMC meeting. Using current spot levels, that would be an entry point right around $1.06. Busch suggests a stop at $1.05 and a target of $1.09.

You can watch the whole discussion in the video clip here in this post.

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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.

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