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Busch: How to Trade the Rise in Rates and the FOMC Minutes

Monday, 20 Aug 2012 | 4:49 PM ET

Friday, we got back to work on CNBC’s "Money in Motion" after being off due to the Olympics. We did two sections on US interest rates and the sudden rise of the 10yr bond yield. I focused on how to trade around the FOMC minutes that will be released on Wednesday.

Here’s a chart of CADJPY and the yield of the US 10yr.

The following are my bullets from the show. We had one of my favorite economists on Deutsche Bank’s Joe Lavorgna to discuss the FOMC. Click here to watch the video.

FOMC Minutes Trade: Two trade for the price of one

FOMC minutes will give you opportunity as they should be more dovish and hint at QE3(Explain this).

If you’ve missed the weak yen trade, here’s a way to get back on.

First, go against it and then go with it.

I expect current Yen weakness to stall before the meeting, then the FOMC to be dovish and then the markets to go back to yen weakness.

Sounds crazy, but this is how you play FX chess: think 2 to 3 moves ahead.

Sell CAD/JPY at 80.45

  • S/L 80.75 (above highs of mid-May and a very tight stop. You want to leave this type of stop when you are going against the trend and trying to fade it.)
  • T/P 79.45 (above breakout high of August 8th) and go long at 79.45.

ON new long CAD/JPY position:

  • S/L at 78.25
  • T/P at 80.25

Essentially, this is a timing trade and against the trend. It’s tricky, but allows you to get involved especially if you missed the big up-move in CADJPY and expect it to continue after a pause.

Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a contributor to CNBC's Money in Motion Currency Trading.You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch .

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

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