How to Use Currencies to Navigate Earnings Season

Monday, 9 Jul 2012 | 6:13 AM ET
Traders work in the ten-year U.S. Treasury Note options pit at the Chicago Board of Trade in Chicago, Illinois, U.S.
Daniel Acker | Bloomberg | Getty Images
Traders work in the ten-year U.S. Treasury Note options pit at the Chicago Board of Trade in Chicago, Illinois, U.S.

Earnings season is coming, and currencies can help you assess how the stock market will fare.

Even if you don't trade currencies, they can be a great tool for navigating earnings season. And with second quarter earnings looming, Todd Gordon, co-head of research and trading at Aspen Trading Group, has a strategy for using currencies to protect against the prospect of dismal reports. "I have a currency trade that you can put on and hedge against a falling stock market," he told CNBC's Melissa Lee.

What, exactly?

"With the stock market falling, you want to be short the Canadian dollar," he says, noting that Canada has had two consecutive weak jobs reports along with disappointing manufacturing data. "Dollar-Canada will rally with a falling stock market and falling crude oil," he says, and adds that it's possible to hedge a $100,000 portfolio with about a $2,000 currency position on margin.

Gordon wants to buy the dollar against the Canadian dollar after a pullback to 1.0200, setting a stop at 0.9900 and a target of 1.0600.

The $4 Trillion Warning
Earnings season kicks off next week. Does the currency market see more pain for stocks, with CNBC's Melissa Lee and the Money In Motion traders.

Kathy Lien of BKForex likes the trade. "There's been a lot of talk about the Bank of Canada raising interest rates," and she thinks that is "completely off the table" after the disappointing economic reports.

You can watch the discussion on the video clip.



left/CNBC/Sections/News_And_Analysis/__Story_Inserts/graphics/__ICONS/icon_story_360_TV.gif1505000lefttruehttp://msnbcmedia.msn.comCNBC 360 TVfalse1PfalsefalsefalsefalseCNBC TVTune 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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