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How to Trade the Dollar's Dive

Canadian Loons
Winfried Wisniewski |The Image Bank | Getty Images
Canadian Loons

Fed comments about monetary easing may have hurt the dollar, but they also lifted hopes for the economy. Here's one strategist's plan.

Federal Reserve Chairman Ben Bernanke's comments about easy monetary policy didn't do the dollar any favors.

But Rebecca Patterson, chief markets strategist for J.P. Morgan Asset Management, Institutional, notes that the comments also lifted confidence, and leveraged currency plays on the U.S. economy had a much better day.

So how do you trade from here? Patterson wants to buy the Canadian dollar. "Canada is going to be a beneficiary of a better U.S. economy, helped in part by Mr. Bernanke," she says. And she wants to trade it against the the yen. "The yen, like the dollar, is a funding currency. I think the yen is an even better funding currency. The Bank of Japan has adopted an inflation target, and it's basically saying we are going to do whatever we have to do to weaken this thing."

Patterson also told CNBC's Melissa Lee that J.P.Morgan believes fair value for the dollar-yen rate is much higher than current levels - around 115 longer term.

So Patterson wants to buy the loonie against the yen right around current levels, at 83.50, with a stop at 82.00 and a target of 88.00.

Brian Kelly of Shelter Harbor Capital prefers buying U.S. dollar against the yen, but generally likes Patterson's trade. "You can buy pretty much any currency versus the yen at this point and you're probably going to do pretty well over the next year," he says.

You can watch the discussion on the video.

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