How to Take Shelter Against European Headwinds

Tuesday, 28 Feb 2012 | 10:10 AM ET
Kristianstad, Sweden
Source: Måns Sjödahl
Kristianstad, Sweden

Europe is facing considerable event risk this week. Here's how to protect yourself using currencies.

Between the European Central Bank'slong-term refinancing operation, Greece's latest rating cut, and more, it's fixing to be a busy week in the euro zone. In fact, Rebecca Patterson, chief markets strategist for J.P. Morgan Asset Management, Institutional, thinks it's a good time to give yourself some protection.

Plans by the ECB and other central banks to inject liquidity are "good news for cyclical assets," Patterson says. "You are probably still biased toward buying dips across cyclical assets."

Still, she told CNBC's Melissa Lee, concerns about Greece and other issues could cast a shadow, and investors who have been building stock positions "want to have protection in case equities pull back."

That's why Patterson recommends buying the dollar against the Swedish krona. With the Swedish stock market largely foreign-owned, "when stocks fall globally, the krona falls too," she says.

Patterson: Buy USD vs. Swedish Krona?
What S&P's Greece downgrade means, a look at LTRO, and Sweden's currency is sensitive to global equity sentiment, says Rebecca Patterson, JPMorgan Asset Management. As a result, Patterson wants to buy the U.S. dollar vs. the Swedish Krona to hedge against an equity pullback.

Patterson wants to enter the trade right around 6.5900 with a stop at 6.4500 and a target of 6.9000.

You can watch the discussion on this video.



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