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How to Trade the Upcoming FOMC Meeting

Friday, 9 Dec 2011 | 9:09 PM ET
Ulf Sjostedt | Photographer's Choice RF | Getty Images

You never know what the Federal Reserve will pull out of its sleeve. This strategist has a playbook for the upcoming FOMC meeting.

All the currency news seems to be coming from Europe, but Tuesday's FOMC meeting could generate some non-euro headlines. Andrew Busch, global currency and public policy strategist for BMO Capital, has three possible scenarios for the meeting - and a trade on one.

Busch believes the FOMC could either do nothing, add to its $400 billion twist program with mortgages and warn of risks from Europe, or do nothing but give new rules for targeting inflation.

The third outcome, he told CNBC's Melissa Lee, is "a fun outcome that I would like to trade."

To do so, Busch would sell euros and buy Swedish kronas. "This is a risk-on trade," he says. And he thinks the upcoming meeting of the Swedish central bank could push the euro higher against the krona, providing a chance to put the trade on at attractive levels.

Busch would sell the euro against the krona at 9.0400 with a stop at 9.0850 and a target of 8.8650.

"I don't think this is the most probable outcome," he says. "But if this occurs, this is a great way to trade it."

2012 Currency Shocker
The man who predicted the euro breakup reveals his next big prediction for 2012, with CNBC's Melissa Lee, the Money In Motion traders and Jens Nordvig, global head of G10 FX strategy, Nomura Securities International, Inc.

You can watch the whole discussion on this videotape.

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CURRENCY FUTURES

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