Your Ultra Bearish Currency Trade
Think today's employment report is a harbinger of troubles to come? Here's a doomsday trade.
That was some employment report today. And David Stockman, director of the Office of Management and Budget for President Reagan, thinks more bad news is looming. "I don't think we should really mince words about this. These numbers confirm, in my view, that it's game over," he told CNBC's Melissa Lee. He argues that there is no political consensus on how to solve the U.S. fiscal challenges, and prolonged economic weakness and political paralysis is in the offing.
If that view is correct, says Amelia Bourdeau, director of foreign exchange at Westpac Institutional Bank. "you want to buy the dollar with both hands." The greenback is both the world's most liquid currency and a safe haven, she points out.
As for what to buy the dollar against, Bourdeau has three criteria. She wants a currency that is correlated with global equity markets, that is relatively illiquid, and that is from a country with high levels of external financing that would dry up in the event of a global economic problem. "The New Zealand dollar fits all three of these," she says.
Bourdeau warns that "you should only enter this trade if you think it's the end of the world." But if you do, she recommends buying the dollar against the New Zealand dollar at 75.30 with a stop at 83.50 and a target of 0.5000.
You can watch the discussion on this 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 Terms Dictionary. Top currency strategies are broken down for you in Currency Class.
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