Currencies That Hedge Against Earnings Surprises
The stronger dollar is hurting a number of multinational companies. If you're worried about your stock portfolio, this strategist has a hedge for you.
Gordon has looked at the performance of the yen and the dollar, both safe haven currencies, and their trading patterns relative to the moves of the S&P 500 stock index.
"In the last two weeks," he told CNBC's Scott Wapner, "we're starting to see a direct correlation between stocks and yen because of the dollar." And he favors the dollar as a currency to buy, since it rallied against the yen after the Federal Reserve said it would extend Operation Twist.
As for a weak currency to sell against the dollar, Gordon likes the euro. "Take a look at the euro over the S&P and we can see clear relative weakness on euro-dollar over the S&P," he says.
"If you want to hedge a long stock portfolio, go short euro in the FX markets."
Rebecca Patterson, chief markets strategist for J.P. Morgan Asset Management, Institutional, likes the trade. "I think this makes a ton of sense," she says. The extreme short positions on the euro have declined, she says, so the market is more neutral. And "don't forget - the currency markets are actually more liquid than equity markets, so another reason to think about currencies to hedge" a stock position.
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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