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The Currency Trade Behind the Merkel-Sarkozy Meeting

The currency markets have been all about Europe all week long. Here's a way to trade the upcoming debt-crisis meetings.

Investors have been on tenterhooks as the European debt-crisis meetings near. But Andrew Busch, global currency and public policy strategist for BMO Capital, expects only "a lot of discussion, a lot of headlines, and probably no concrete decisions made."

The key thing, he told CNBC's Scott Wapner, is what the leaders decide to do about writing down Greek debt, recapitalizing banks, and leveraging up the stabilization fund. On the debt, "Fifty percent is what the markets are anticipating because that's what is priced in," Busch says. "For the recapitalization, they have to say that at least $200 billion has to be done by these banks in Europe," and probably more. "The European Financial Stability Fund leveraging up has got to be at least $1 trillion."

That's a tall order. And Busch expects that even if the policymakers come up with a plan along these lines, any relief rally will be followed by a case of 'sell on the news.'

So Busch recommends selling the euro against the dollar

on a rally, right around 1.4050. He wants to set a stop at 1.4160 and a target at 1.3670.

Rebecca Patterson, chief markets strategist for J.P. Morgan Asset Management, Institutional, agrees with the general premise of the trade. "I love selling the euro on rallies," she says. But she points out that the U.S. will release GDP data just one day after the second European meeting, and "if we get a better than expected growth rate out of the U.S., even if it's backward looking, that could keep this risk rally going" and there might be an even better entry point for the trade.

You can watch the whole discussion on this videotape.

MULTI CURRENCIES v The Dollar

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