Tips For Trading Euro Turmoil

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Businessman with crystal ball

Aid to Spain lifted the euro, Italy is weighing it down, and plenty of traders are flummoxed — but not this one.

If you thought trading the euro was tough earlier this year, when seemingly nothing could move it out of a narrow range, this week has probably felt like deja vu all over again.

First, the euro soared on news of an aid deal for Spanish banks, and then it gave back the gains when details of the deal looked troubling. Now Italy's troubles and the upcoming Greek election are weighing on the currency, and trading is choppy.

Amid all the static, Todd Gordon, co-head of research and trading at Aspen Trading Group, has a plan. In essence, he told CNBC's Scott Wapner, "the risk trade is still a sell." But it's not quite that simple.

For one thing, Gordon notes that in technical terms, the market is oversold, with investors holding massive short positions on the euro that they would have to cover if good news sparked a rally.

The key, he says, is to "sell strength in a falling market. That's a trader's mantra." He wants to wait for the euro to bounce to 1.2550, at which point he would sell it against the dollar with a stop at 1.2670 and a target around 1.2300.

Gordon also likes to trade forex with a stock market overlay, he says, so he is watching the S&P 500 stock index and hoping for a bounce to 1325, which he says is a technical resistance level. "If you get those two together it's a trader's trade," he says.

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 Terms Dictionary. Top currency strategies are broken down for you in Currency Class.

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