How to Use Currencies to Trade on Earnings

Canadian Loons
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Canadian Loons

Looking for a way to trade on first quarter earnings? This strategist has a plan for you.

This earnings season is arriving in the midst of economic uncertainty - but it may be less of a problem than you think.

"The good news, I think, on earnings is that expectations have been set very, very low for this quarter," says Rebecca Patterson, chief markets strategist for J.P. Morgan Asset Management, Institutional. "People aren't looking for much," which creates a decent chance for an upside surprise.

Sure enough, as of Friday, 29 companies in the S&P 500 had reported first quarter earnings, and 83% of them beat expectations, Patterson told CNBC's Melissa Lee.

So how do you play the possibility of more pleasant surprises? It's complicated.

"Historically, if I thought I was going to have a good earnings season, I would buy Sweden," Patterson says. With so many large technology and telecom companies in the country and large foreign ownership, "it tends to act as a high-beta play on U.S. earnings season."

But these are not ordinary times in Europe, so Patterson is looking elsewhere. She likes what she sees in Canada.

"My view is, if the U.S. is doing okay or a little better than expected, I want to be invested in a market that's going to be a big beneficiary of a stronger U.S.," she says. She also thinks the Bank of Canada will upgrade their assessment of the Canadian economy at their upcoming meeting.

Patterson wants to buy the Canadian dollar against the dollar as a short term trade, entering at 0.9980 with a stop at 1.0050 and a target of 0.9800.

Amelia Bourdeau, director of foreign exchange at Westpac Institutional Bank, likes the trade.

"The Bank of Canada has been turning very hawkish lately," she says.

You can watch the discussion on this video.


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 Currency Terms. Top currency strategies are broken down for you in Currency Class.

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