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Your Currency Trade for the FOMC Meeting

Monday, 12 Mar 2012 | 11:00 AM ET
Traders work in the ten-year U.S. Treasury Note options pit at the Chicago Board of Trade in Chicago, Illinois, U.S.
Daniel Acker | Bloomberg | Getty Images
Traders work in the ten-year U.S. Treasury Note options pit at the Chicago Board of Trade in Chicago, Illinois, U.S.

If Federal Reserve Chairman Ben Bernanke stays mum on quantitative easing , here's what to do.

Economic data watchers - you know who you are - have had some good times lately watching U.S. numbers roll in. Friday's nonfarm payroll report was the latest to suggest that the worst times for the U.S. economy are over. Andrew Busch, global currency and public policy strategist for BMO Capital, thinks that will dictate what Federal Reserve Chairman Ben Bernanke says at the upcoming FOMC meeting.

"Bernanke's backing away from QE3. The fact is we're getting decent economic data. He's got to tamp down expectations," Busch told CNBC's Melissa Lee. "I would imagine after 227,000 on the payroll numbers, the Fed has to get a little more ebullient on the economy."

Jobs, the Fed & the Dollar
Does the strong jobs report spell the end for QE3? The currency trade behind next week's Fed meeting, with CNBC's Melissa Lee and the Money In Motion traders.

Still, nothing is certain in the world of Fed watching, so Busch has a playbook for the upcoming meeting.

If there is much talk of quantitative easing, Busch wants to "buy the currency that's the hottest thing going, and that's the Mexican peso," says. He would trade it against the dollar.

But if Bernanke talks down QE3, as Busch expects, he wants to sell euros. "The euro, to me, seems to be the weakest currency on the board," he says.

There could be some volatility around the meeting, Busch says, so he suggests entering the trade right around 1.3170, setting a stop at 1.3275 and a target at 1.2875.

Todd Gordon, co-head of research and trading at Aspen Trading Group, thinks selling the euro makes sense, though he says it might work better to trade it against emerging market currencies.

But Busch says emerging market countries are cutting interest rates aggressively, which could alter the risk-on, risk-off trading patterns that have been so prevalent.

You can watch the discussion on the video.

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 moneyinmotion@cnbc.com.

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