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How to Trade the Euro's Rise

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The euro has been on a tear, but don't just look at it against the dollar, this strategist says.

There was a time not long ago when the euro was on the ropes. But what a difference a few weeks make: today the euro topped 1.3100 against the dollar in the wake of the Federal Reserve'sannouncement of a third round of quantitative easing.

"We cannot underestimate the power of sentiment here," says Kathy Lien of BK Asset Management, adding investors who were short the euro are also covering their positions, helping to lift the common currency.

Fed Chairman Ben Bernanke's strong wording of his QE announcement is also helping, Lien says. "The word 'unlimited' is going to resonate across the FX markets," she told CNBC's Scott Wapner. "I think risk appetite and euro-dollar have more room to go."

That said, Lien thinks there are better opportunities to trade on euro strength - like the euro against the yen.

"There is no better currency to take advantage of a risk move than euro yen," she says, because the pair is closely correlated with the performance of the S&P 500.

An intervention by Japan to curb the yen's strength would also make euro-yen a winning trade, she says. In terms of technical factors, Lien also sees "a nice breakout that's just happening in euro-yen, whereas the move in euro-dollar is a bit more mature."

So Lien wants to wait for a slight dip to 101.75 to enter the trade, and then set a stop at 99.75 and a target of 105.00.

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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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