Money in Motion

Busch: Friday's Trade

We know that Bernanke & Co. have been actively trying to downplay any talk of QE3 and today's WaPo article"Ben Bernanke unlikely to announce big new plans at Jackson Hole is a fine example of this "leaking" process.

Friday also has Q2 GDP revisions and market whisper is that we could get a sub 1.0% number which would jack up the predictions for QE3.

Actually, I like to call it Qe3 as the easing component will be much smaller that previous rounds. The point is that we have several scenarios that will provide trading opportunities.

Let's do a playbook:

  • Scenario 1: Bad GDP with no indications of Qe3
  • Scenario 2: Good GDP with an indication of Qe3
  • Scenario 3: Expected GDP with mixed indications of Qe3

If we get Scenario 2, this should lead to a strong Risk-On trading day and favor emerging markets currencies against US dollar and EUR . Let's use the Turkish lira.

Why this pair?

I like selling EUR as it's near the top end of a 1.40-1.45 range with event risk on country votes for expanding EFSF and easing actions by the ECB.

I like buying TRY as the central bank didn't cut rates yesterday at 5.75% and they are considering cutting taxes on things like communications to aid growth. However, this pair is not for the faint of heart as it has big time volatility. Turkey's Q1 GDP was 11% and was higher than China. It's seen as Eurasia's rising economic tiger and has a high correlation for Risk-On.

Sell EUR/Buy TRY

  • Entry 2.5715
  • S/L 2.5915
  • T/P 2.5215

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.

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