How to Trade the Currency Risk Rally Now
Is it time for risk-on currencies to drop back? This strategist thinks so, and he has a plan to trade the move.
The Bank of Japan's intervention on Monday pushed the yen sharply lower, and it stands ready to move again - but according Todd Gordon, co-head of research and trading at Aspen Trading Group, they're bound to fail.
"They went big, but the Ministry of Finance was acting unilaterally. Based on the past, it's just not going to work," he told CNBC's Melissa Lee. It's not just because unilateral currency interventions have a lousy track record, though. Gordon also thinks the rally in risk-on currencies is just about out of gas. Gordon points out that the yen-Australian dollar pair closely tracks the movement of S&P 500 futures, and futures have gotten ahead of Aussie-yen, suggesting a pullback is coming.
Oh, and by the way, this currency pair is moving fast.
Gordon on Monday recommended the Australian dollar against the yen at 82.65 with a move to right around 80.00. But after the Reserve Bank of Australia cut interest rates overnight, and Greece alarmed investors with its plan for a referendum on the debt deal, Gordon told me he is moving his targets lower.
If you're not in the trade yet, he recommends putting on half your position at 81.35 and half at 80.95, with a target for half your position at 79.50 and the other half at 79.00. The stop for the trade now is 82.15, so if you got in last night, you're ahead of the game.
You can watch last night's discussion in the video clip.
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 firstname.lastname@example.org.