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How to Trade on the Outlook for Oil

Crude oil had a rough week, but this strategist thinks it won't last. Here's how to play the price drop using currencies.

In just one month, crude oil managed to fall nine percent, and decline in four of the last five weeks. But Rebecca Patterson, chief markets strategist for J.P. Morgan Asset Management, Institutional, thinks the weakness will be short lived.

"We've been bullish oil all year, and had a view that even if global demand was somewhat soft the supply perceptions would keep a floor under oil," she told CNBC's Scott Wapner. Also, she says, oil producing countries want to keep prices high enough to have a budget surplus, and the ability to keep social unrest - and any spreading of the Arab spring - at bay. "The bottom line is, even if oil comes down, these policymakers won't let it stay too low too long because they need it for social stability," she says.

So Patterson wants to sell the U.S. dollar against the Canadian dollar. "Canada is a major oil producer," she says. "Its economy is going to benefit if the U.S. recovery continues." Patterson also points out that the last New York sentiment survey was at a one-year high, and a significant share of Canada's trade with the U.S. is in New York.

Patterson wants to enter the trade at 1.00, and look for move to 0.9850 with a stop loss at 1.0120.

One warning: "This is a short term trade," Patterson says. A Canadian payroll report is coming next week, and while Patterson thinks it will support the bullish outlook, "you might want to take profits after that" before the U.S. nonfarm payroll report on April 6.

You can watch the discussion on this video.

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CURRENCY FUTURES

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