How to Trade a European Debt Downgrade
Traders have been bracing for sovereign rating cuts in Europe ever since Standard & Poor's issued a warning. Here's what to do.
Credit-rating cuts are never good for countries, but when the real stalwarts get hit, it hurts more. That's why investors are bracing themselves after Standard & Poor's warned that Germany and France could face downgrades.
"We've been waiting all week to see if S&P downgrades," says Andrew Busch, global currency and public policy strategist for BMO Capital. "They specifically said Germany and France, and I think that's what caught everybody by surprise."
Busch told CNBC's Scott Wapner that market chatter that the cuts were imminent drove the euro sharply lower on Wednesday, and he wants to sell the euro on an announcement of a downgrade of both Germany and France. He would initiate the trade around current spot levels, 1.3150, with a stop at 1.3250 and a target at 1.2875.
Oh, and if you reach that target, Busch suggests closing just half the position. "If we get that triple-A downgrade of both Germany and France, we'll definitely be able to get through those levels," he says.
You can watch the whole discussion right here on the tape.
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