How to Trade a Manufacturing Slowdown

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An employee stacks grills for Geely Automobile Holdings Ltd. Emgrand 7 series automobiles at the company's factory in Cixi, Zhejiang Province, China.

Manufacturing reports are disappointing investors, and this strategist has a plan to trade the mood with currencies.

How do you trade slowing manufacturing activity? With currencies, says Todd Gordon, co-head of research and trading at Aspen Trading Group.

Gordon told CNBC's Scott Wapner that the Australian dollar -yen pair closely tracks the S&P 500 stock index, so with disappointing manufacturing reports from China and the euro zone spooking investors and driving the index lower, he wants to sell the Aussie against the yen.

"The China PMI is starting to have an impact in Australia and New Zealand," he says, pointing to a downbeat New Zealand GDP report. "The Australian dollar led the markets up in the last six months - now it seems to be leading it down. Aussie is where we want to be short."

Gordon is much more bullish on the yen. It's had a rough ride lately, but "the yen weakness that we've seen is heavily oversubscribed," he says.

Gordon wants to enter the trade at 85.90 with a stop at 87.00 and a target of 82.50.

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.

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