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Your Trade for the European Central Bank Meeting

European Central Bank
European Central Bank

The euro's being whipsawed by talk of debt plans. Here's how to trade an actual European event.

The European Central Bank is meeting on October 6, and there is a lot of talk about what might ensue.

There is lots of chatter about a possible interest rate cut, and in fact J.P. Morgan's official view is that a cut is coming. But with inflation at 3% and some German politicians resisting aid to the peripheral countries, "I don't think it's a home run," says Rebecca Patterson, chief markets strategist for J.P. Morgan Asset Management, Institutional.

Andrew Busch, global currency and public policy strategist for BMO Capital, agrees that a rate cut is not a certainty. What is certain, in his view, is that there will be plenty of risk aversion in the markets until after October 14, when Greece has some debt maturing.

Fine - but it's hard to know how to trade these possibilities. So Todd Gordon, co-head of research and trading at Aspen Trading Group, wants to play it relatively safe. He thinks the euro has room to move lower, but he wants to sell on a bounce, he told CNBC's Melissa Lee.

"We're seeing evidence that the risk trade to the downside is exhausted," he says, and improved risk appetite ought to help the single currency. So Gordon wants to be what he calls a "scale-up seller," using half his position to sell the euro at 1.36 and then selling the rest on a bounce to 1.38. He wants to set a stop at 1.3975 and a target of 1.3320.

CURRENCY FUTURES

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