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How to Trade on a China Slowdown

Thursday, 20 Oct 2011 | 4:14 PM ET
Job seekers read recruitment newspapers at a job fair in Shanghai, China.
Bloomberg | Getty Images
Job seekers read recruitment newspapers at a job fair in Shanghai, China.

Currency markets are hanging on every European headline, so this strategist has a trade in another direction.

How best to describe the currency markets now? How about "headline driven, vicious, range-bound?"

That's the opinion of Todd Gordon, co-head of research and trading at Aspen Trading Group. So instead of trying to maneuver in the euro zone, he's looking east.

In particular, Gordon told CNBC's Scott Wapner, he's looking at the conflicting pressures on Asian economies. "On one side of the trade, we've got the inflationary, positive U.S. data trade driving these economies higher," he says. "In the east, we have China lower, we've got copper lower, which is forming a big technical divergence." And that means opportunity.

Trading the Aussie Dollar
Todd Gordon, Fast Money contributor, explains why the Aussie dollar and Japanese yen are well correlated.

Gordon wants to go short the Australian dollar, since Australia is a major commodity exporter, and while not a big copper player, it tends to move with the copper market. "As China restocks and China is not buying a lot of copper stockpiles," Gordon says, it makes sense to sell the Aussie given the headline risk of this "European weekend."

Meanwhile, the yen is re-emerging as a safe haven, Gordon says. So he recommends selling the Aussie against the yen at 79.00 with a stop at 80.50 and a target of 76.00.

Pay attention to the U.S. stock market when you evaluate this trade, Gordon adds. "This trades very will with the S&P 500, so if the S&P gets below 1200, watch this Aussie-yen trade push lower."

You can watch the whole discussion on 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 moneyinmotion@cnbc.com.

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