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How to Trade on the Bank of England's Moves

Photo: Scott Barbour | Getty Images

Even in a volatile, headline-driven market, short-term trading opportunities crop up. Here's one strategist's near term plan.

Another day, another headline or three to jar the currency markets. Today it's word that the European Central Bank may lend money to the International Monetary Fund as a way of funding Italy's bailout, which is lifting the euro.

But Rebecca Patterson, chief markets strategist for J.P. Morgan Asset Management, Institutional, isn't so sure such a move would provide a lasting lift. "The European Central Bank has to be part of the solution here, but obviously there are a lot of other pieces that have to fall into place," like governments carrying out austerity plans and improved governance, she told CNBC's Simon Hobbs.

That's why Patterson is opting to focus on the near term for a trading opportunity, and she sees one with the British pound. She expects the next round of Bank of England minutes, due to be released on Nov. 23, to be "super dovish," and she also thinks the Congressional deficit supercommittee will fail to come up with anything significant. Those negatives should keep risk aversion strong, she says, and thereby drive the pound lower against the dollar.

Patterson wants to sell the pound against the dollar at 1.5785 with a target of 1.5385 and a tight stop at 1.6000.

"If something else comes up - Spain's election causes a risk appetite bounce on Monday, the supercommittee surprises us happily, then you get stopped out, but you don't leave a lot on the table," she says.

You can watch the whole discussion on the videotape above.

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.

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