How to Trade on a Potential Government Shutdown

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It's back to the future as Congress tussles over a continuing budget resolution. Here's how to trade on the brinkmanship.

Congress has to vote today to end debate on a continuing resolution to keep the government running. If it doesn't pass, then it's time to...sell the British pound against the Canadian dollar, says Andrew Busch, global currency and public policy strategist for BMO Capital.

Why that pair? Busch went back and looked at the last time the government shut down over budget issues, in 1994 and 1995. Both times, he says, the pound fell against the loonie. "The trade is back to the future," he says.

Busch recommends selling around 1.5965 with a stop of 1.6025 and a target of 1.5650.

"This is just adding to the uncertainty that's out there," Busch told CNBC's Melissa Lee. "I think they'll get through it, but it's a wonderful opportunity to step in and sell sterling-Canada."

Amelia Bourdeau, director of foreign exchange at Westpac Institutional Bank, likes the trade as well. The British pound typically weakens when investors are risk averse, she says, and trading it against the Canadian dollar makes sense because in this instance it's harder to judge how the U.S. dollar would react.

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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