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What Currencies Are Saying About Stocks

Businessman with crystal ball
Fredrik Skold | The Image Bank | Getty Images
Businessman with crystal ball

Trading patterns for currencies suggest stocks could be headed lower, this strategist says.

Sure, you can trade currencies as an alternative to stocks. But what about looking at currencies for clues to stocks' direction?

Todd Gordon, co-head of research and trading at Aspen Trading Group, did that recently, and he says the signs aren't great.

Over the week ended May 25, he says, the S&P 500 stock index moved higher, but risk currencies weakened. "Two times out of three, that's unsustainable," he told CNBC's Melissa Lee. "The S&P can't charge ahead without confirmation from risk FX."

Looking back longer term, Gordon says, other stock markets have also been pushing lower. "The S&P is kind of going it alone."

Gordon thinks that stock move is unsustainable, and he has a currency play. Noting that the euro had been holding above 1.29 against the Australian dollar. But that level, has been breached, which Gordon says means that euro selling will outpace any buying of the Australian dollar. So, he says, "if you want to play an S&P selloff, you want to go to the weaker currency. That means go to euro-dollar. It sounds obvious, but now, with evidence from euro-Aussie, euro-dollar is the weakest trade."

You can watch the discussion on the video.left/CNBC/Sections/News_And_Analysis/__Story_Inserts/graphics/__ICONS/icon_story_360_TV.gif1505000lefttruehttp://msnbcmedia.msn.comCNBC 360 TVfalse1PfalsefalsefalsefalseCNBC TVTune 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.