Outside Stocks: The Currency Trade


Amid all the earnings insanity you might be missing an important part of the market.

There are colossal moves happening in currency trading. Hedge funds, desperately seeking alternatives, are flocking to the world's most liquid market with forex volume up 15 percent in 2008.

Should you follow them in? And if so, what’s the trade?

For insights we turned to Rebecca Patterson, head of global currencies/commodities at JPMorgan.

Patterson first explains she's not confident the market has bottomed for stocks. “It’s not clear to me we’re there, at the bottom” she says.

So she’s suggesting currency plays to her clients that benefit if stocks have seen the bottom -- but don’t have one-for-one risk if they haven’t.

As a result she recommends buying the Australian dollar and selling the Japanese yen against it.

“It’s not just a risk appetite play. It’s also a valuation play,” she explains. “And it's an intervention risk play. In other words, I think if the yen strengthens too much the government of Japan will put a halt to it."

And she goes on to say, "I (also) like playing the yen from the short side because, quite frankly, I think the yen is a little over priced.”

And in the short term she’s bullish the dollar. “We think the US leads the global recovery,” she says. “However, I do think there’s bigger dollar downside risk further out.”

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Trader disclosure: On Apr 13th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour Owns (AAPL), (BAC), (BX), (EEM), (FXI), (F), (PBR), (TCK); Syemour's Firm Owns (RIG); Macke Owns (WFC), (AAPL), (WMT), (GS), (GE), (SDS); Najarian Owns (BX) CAll Spread; Najarian Owns (C) Call Spread; Najarian owns (GS) Call Spread; Najarian Owns (MAR) Calls; Najarian owns (PALM) Stock & Calls; Najarian Owns (RIO) Calls; Najarian Owns (XHB) Call Spread; Najarian Owns (PCU) Calls; FInerman's Firm Owns (AET), (AXP), (MSFT), (RIG), (PBR), (TBT), (UNH), (DYN); Finerman's Firm Owns (WFC) Preferred, (BAC) Preferred; Finerman Owns (BAC) Preferred; Finerman's Firm Is Short (IYR), (MDY), (SPY), (USO), (BAC), (BBT), (WFC)

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