Turning High Oil Prices Into a Currency Trade
Oil prices have been on a tear, and this strategist can help you trade on oil's strength using currencies.
High oil prices are sparking talk of a possible release of strategic petroleum reserves. That would have an obvious impact on oil - but how big an impact is another question.
Eric Lee, a commodities analyst at Citigroup, argues that there are a variety of ways policymakers could boost the impact of an SPR release: they could leave the size open ended, they could hold off on replenishing reserves, and more.
"It is possible we get something more effective," says Rebecca Patterson, chief investment officer at Bessemer Trust, noting that U.S. officials have been talking to various counterparties to possibly arrange a coordinated action. Still, she told CNBC's Melissa Leeshe's not sure the impact of even that kind of release would be that large.
When the reserves were tapped in June 2011, oil prices fell 8 percent, Patterson says - but recovered all that ground in two weeks. "I think now it's boy who cried wolf," she says. "Even if it's coordinated I'm not sure how long and how far the oil pullback lasts."
That's why Patterson has a plan to trade on an SPR release - by buying the Norwegian krone against the dollar on a dip. She actually bought the krone two weeks ago, looking for a lift from both oil prices and a hawkish central bank. The trade has worked, so for investors already in the trade she suggests possibly tightening the stop.
For investors who want to put the trade on, Patterson recommends entering at 5.7500, looking for a move to 5.6300 with a stop at 5.8000.
MULTI CURRENCIES v The Dollar
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.
Talk back: Tell us what you want to hear about - email us at email@example.com.