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How to Trade a Risk Rebound

Rose | Mueller | Stock4B | Getty Images

Bears may be prowling in the currency markets today, but this strategist thinks risk appetite could rebound - and he has a trade ready.

In a week when three central banks inject stimulus, you might think markets would be on a roll. But the interest rate cut by the European Central Bank was so underwhelming, according to Boris Schlossberg of BKForex, that investors are just kind of fed up.

"The market is just completely disappointed with what happened with the ECB," Schlossberg told CNBC's Scott Wapner. "European policymakers are just not taking this seriously enough."

Schlossberg argues that the euro could easily fall all the way to 1.20 absent a meaningful change in euro zone conditions. The common currency, he says, "looks like a wounded animal."

Even so, Schlossberg says, a rebound in risk appetite is possible next week, especially if trade data from China doesn't disappoint. And if that happens, he wants to buy the Australian dollar. The Aussie, he says, "remains king of the carry," thanks to Australia's high interest rates relative to other G-10 countries.

So Schlossberg is watching to see if the Aussie can rally to 1.0300. If so, he would be a buyer, setting a stop at 1.0200 and a target of 1.0450. "If you're going to play risk," he says, "this is the currency that you want to be long at because it's the best currency out there right now."

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MULTI CURRENCIES v The Dollar

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