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How to Trade on a Possible European Debt Plan

Tuesday, 27 Sep 2011 | 9:49 AM ET
Yuri Kuzmin | iStock Vectors | Getty Images

Think the potential European debt plan will give the euro a significant lift? Think again, this strategist says.

Happy days are here again in some corners of the forex market, thanks to talk that a potential fix for the European debt crisis is in the works. But Amelia Bourdeau, director of foreign exchange at Westpac Institutional Bank, says it's a little too soon to celebrate.

The potential increase in firepower for the European Financial Stability Fund "would be a good idea," she told CNBC's Melissa LeeBut some officials, like the German finance minister, have poured cold water on the idea, she said. "The idea will be debated, and that debate typically isn't positive for euro. While the final result could be euro positive, I think it will be a rocky road to get there."

Money in Motion: The Euro Trade
Amelia Bourdeau, Westpac Institutional Bank with an option trade on the EU's plan to lever up the EFSF.

Even before that debate starts, there will be ups and downs in the euro zone. Greece is due to receive its next tranche of aid next week, and there is talk that the European Central Bank could reverse course and cut interest rates at its upcoming meeting, which would almost certainly affect the euro.

Bourdeau thinks the euro could bounce higher later this week if the Germans ratify the previously agreed to changes to the stabilization fund, so she would short the euro at 1.3750 with a stop at 1.3905 and a target of 1.3400.

You can watch the discussion in the videotape.

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