GO
Loading...

Why You Should Trade Currency Pleasure for Pain

Friday, 12 Aug 2011 | 8:34 PM ET
Private Equity Risk
Source: Getty Images
Private Equity Risk

In a week like the one just ended, it's worth giving up some pleasure to avoid more pain, these strategists say.

It's been quite a week, and it's not at all clear the volatility is over. So Andrew Busch, global currency and public policy strategist for BMO Capital, would like to unload some risk.

Busch identifies three currencies - the Aussie, the kiwi, and the Swedish krona - as his favorite "positive currencies" - currencies that will outperform when investors are feeling good. His "negative currencies" are the Swiss franc, the yen, and the dollar, he told CNBC's Melissa Lee.

Given what's been going on in the markets, with currencies moving like equities, Busch is ready to go risk-averse, so he recommends selling the Swedish krona against the dollar.

"I'm buying a negative currency and selling a positive currency," he says. He recommends entering the trade at 6.3990, just above recent lows, putting a stop at 6.23 which is below the bottom of an uptrend channel, and looking to reach 6.7850, the top of an uptrend channel.

Rebecca Patterson, chief markets strategist for J.P. Morgan Asset Management, likes that trade as well. She also points out that in Sweden, "there's an interesting twist here between currencies and stocks.

"Sweden's equity market is about a third owned by foreigners," Patterson says, and it is heavily weighted toward technology and telecoms. "When you see risk off and Americans pulling back, they start repatriating capital and selling foreign assets, and that stock market is one they focus on. People sell Swedish shares, they sell Swedish krona in the process and that's why it weakens."

The dollar, conversely, has risen in each of the last six recessions, Patterson says.

You can watch the whole discussion right here.

Money Match Up: U.S. Dollar
Discussing Italy's new austerity plan, and whether there is a double-dip to dunk the dollar, with CNBC's Melissa Lee and the Money in Motion traders.

CURRENCY FUTURES

Tune In: CNBC's "Money in Motion Currency Trading" airs on Fridays at 5:30pm and repeats on Saturdays at 7pm.

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

Talk back: Tell us what you want to hear about - email us at moneyinmotion@cnbc.com.

  Price   Change %Change
USD INDEX
---

Featured