How to Trade the Euro's Slide

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The euro's sliding, but be careful how you trade it.

In case the current safe-haven demand for the dollar isn't bad news enough for the euro-dollar pair, now comes word that there is a possible snag with aid to Greece. Not surprisingly, the euro fell earlier to a two-month low.

"On the European side, the big negative is that Spain has yet to apply for aid, so that's a factor that is definitely weighing on the euro now," says Jens Nordvig, global head of currency strategy at Nomura Securities. "Then on the U.S. side, the fiscal cliff concern is something that's adding to risk aversion and that's also putting downward pressure" on the common currency.

So how do you trade this sinking currency?

Be very careful, Nordvig says. "The important thing is it's not the same environment as the summer," he told CNBC. The euro was sinking fast before European Central Bank President Mario Draghi stepped in with a pledge to preserve the currency, followed by plans for a bond buying program. "The ECB is there now to provide backup, so the moves will be somewhat smaller, and that means you'll have to be careful with the entry point" of any trade.

Nordvig recommends waiting for the euro to spike to 1.2900, and then selling it against the dollar, looking for a move down to 1.2600.

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.

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