How to trade the euro-dollar divergence

These days, Europe and the United States are heading in different directions, setting the stage for the divergence trade to make a comeback.

Europe is trying to boost growth as it struggles with economic malaise, while the U.S. economy is showing signs of improvement.

The European Central Bank on Thursday further eased monetary policy, while expectations are growing again for the U.S. Federal Reserve to further tighten policy this year.

Call it divergence—and the wider the gap between the two regions in policy and economic fortunes, the more compelling the case for the divergence trade.

Put simply, buy dollars and dump euros. Or sell the EUR/USD cross.

Data from Kensho, a tool used to quantify historical market events, shows that the EUR/USD tends to fall after easing action from the ECB or dovish statements from the central bank's president, Mario Draghi.

In some cases, such as Thursday for example, the EUR/USD has instead risen after ECB easing, as investors question the effectiveness of such action. But if you think that ultimately the euro will weaken as policy stays loose and economic growth sluggish, then divergence is the name of the game and the recent bump in the EUR/USD could be an opportunity.

The EUR/USD is the obvious trade. But there are other plays that have proved profitable when divergence is back in play. Using Kensho, we looked for some of the best trades since the start of 2015 when the EUR/USD has fallen 3 percent or more in one week.

A weaker euro is good news for the European economy and companies, as it makes exports more competitive. So, not surprisingly, European equities surge.

Germany's DAX index has traded positive in all seven occasions and returned more than 4 percent on average. The eurozone's blue chip Euro Stoxx 50 index has gained ground in every instance but one, and returned 2.7 percent on average.

Certain European ETFs listed in the United States have been reliable bets as well. But beware those that don't hedge for the impact of currency moves. They tend to underperform when the euro is weakening.

The WisdomTree Europe Hedged Equity Fund (HEDJ) invests in a basket of European equities while also shorting the euro. It's been a reliable winner when the EUR/USD is falling.

Also watch out for commodities. Though European stimulus might give the global economy a boost eventually, resources like copper and gold are priced in U.S. dollars and take a hit when the greenback strengthens.

A strengthening dollar isn't necessarily a bearish signal for U.S. equities. Profits at multinational corporations with big sales abroad are hurt by a stronger home currency, but smaller, more domestically focused companies tend to be shielded. So favor the small-cap Russell 2000 over the blue chip Dow Jones Industrial Average in a stronger greenback environment.

Finally, a word of caution. History is no guarantee of future returns. And those that bet against the euro in December were burned when the ECB eased policy less than forecast. But if Draghi and the ECB deliver and the U.S. economy continues to improve—the divergence trade could just be heating up.

DISCLOSURE: NBC Universal, the parent company of CNBC, is a minority investor in Kensho.