How to Use Currencies to Trade Your Stock-Market View

AP

Worried about Europe's troubles, but leery of using stocks to take a position?

Here's the plan for you.

Sometimes, currency pairs perform in tandem with completely different assets. A case in point: the Australian dollar against the Japanese yen, which almost mirrors the move of the Standard & Poor's 500 stock index.

George Davis, chief technical analyst at RBC Capital Markets, suggests using the currency pair to take a position on the European debt crisis.

"The key takeaway here in terms of trading opportunities is, if you believe that the sovereign risks in Europe are going to linger and create additional spikes in risk aversion levels, what we are likely to see is some additional downside risks for equity market," he told CNBC's Melissa Lee. And that suggest the Aussie-yen pair could move lower, he says.

That said, Davis points out that in valuation terms, the Aussie seems to be oversold, so he would wait for a bounce to initiate a trade. He recommends selling the Australian dollar against the yen at 77.50 with a target of 72.00 and a stop at 79.50.

You can watch the whole discussion in the videotape.

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 [e-mail].