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How to Trade Today's Euro Zone Aid

Thursday, 15 Sep 2011 | 4:08 PM ET
Sink with faucet running
Sink with faucet running

Central banks are coordinating to open up funding for European banks, and the euro is up on the news. Whether it will last is another story.

All the problems in the euro zone are starting to affect some European banks' access to funding, so the announcement of a coordinated action to make that easier was welcome news. Euro investors were especially happy since the move gave the currency a nice lift against the dollar.

But don't get too comfortable. The move could be over before you know it, says Paresh Upadhyaya, director of G10 FX strategy at Bank of America Merrill Lynch.

"I'm recommending to clients to fade any selloff in the dollar," he told me. There are bigger issues in the air, he says, like the upcoming FOMC meeting and the change in tone at the European Central Bank that is "potentially laying the groundwork for rate cuts" that would send the euro lower.

"There remain plenty of landmines ahead that have the potential to push the EUR-USD off stride," he says.

As for levels to trade, Upadhyaya is watching the dollar index relative to its 200-day moving average. As long as it stays above that level, he thinks the euro could fall to 1.33 or even 1.30.

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.

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