Will Bernanke Or Won't He?
The gloomy jobs report may make quantitative easing more likely - or maybe not. Here is one strategist's trading plan.
It's been an eventful few days in the currency markets since the Labor Day weekend, most recently with the release of a lackluster jobs report that is raising the specter of another round of quantitative easing.
Boris Schlossberg, Managing Director at BK Asset Management, has a plan for trading Fed Chairman Ben Bernanke's possible next move.
"The market is starting to bet now that we're going to have another round of QE," he told CNBC's Scott Wapner. But Schlossberg thinks there is more to parse than a single employment statistic.
Quantitative easing becomes more complicated politically as election day approaches, Schlossberg says. But with Republicans threatening to fire Bernanke if they win, he may feel he has little to lose by injecting more stimulus. Then again, Schlossberg says, "I think the biggest reason for why we have a slowdown in jobs is because we have a high price of oil," which would argue against easing.
If Bernanke doesn't pull the trigger, Schlossberg's view is that "the cleanest trade in the cur market is dollar yen ." He would enter the trade at 79.00, setting a stop at 78.00 and looking for a move to 80.00, what he calls a "magic" target. If the yen does reach that level, investors could consider moving the target higher to 82.00.
"When you look at everything else on a relative basis, the U.S. economy has actually been doing okay," he says. "If we can sustain this kind of growth going forward, I think dollar yen could start to appreciate if you don't have the QE threat."
As for the euro, which has rallied since the European Central Bankannounced its bond buying plan, Schlossberg is getting wary.
"I don't think there's too much juice left in this trade," he says, adding that euro zone policymakers are probably well aware that a higher euro is tough on the ailing euro zone economy - which makes buying the euro tricky. But a key German court ruling on the bailout is due next week, and a pro-bailout decision could push the currency higher - so selling is also iffy.
You can watch the discussion on the video clip, starting at 2:28.
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