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How to Trade a Bouncing Euro

A man holds a placard bearing the Greek flag.
Anne-christine Poujoulat
A man holds a placard bearing the Greek flag.

One of these days, the drama in Europe will slow down - just not yet. Here's how to trade euro bounces.

If you thought the worst was over for now in Greece, surprise! The new government has asked for two more years to meet austerity targets, and today the euro is taking it on the chin.

Todd Gordon, co-head of research and trading at Aspen Trading Group, says that's a sign of things to come, and he recommends selling the euro on a bounce.

"We've got kind of a double whammy for a short euro trade," he told CNBC's Scott Wapner. With the Greek government pushing back on austerity, uncertainty over the ailing country will continue, and weigh on the common currency, he says.

Meanwhile, the Federal Reserve's plan to continue Operation Twist, selling short-term debt to buy long-term in an effort to flatten the Treasury yield curve, will help the dollar, Gordon says. "Upward pressure on yields short-term yields correlates well with a strong dollar."

So Gordon wants to wait for the euro to bounce back to 1.2600, and then sell it against the dollar with a stop at 1.2700 with a target of 1.2300, a three-to-one risk-reward plan.

Brian Kelly of Shelter Harbor Capital likes the trade too. Like Gordon, he wants to wait for a pullback, but for the trade itself, he says, "I'd be right on board with that."

You can watch the discussion on the video clip.

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