How to Trade Diverging Central Bank Policies

Wondering how to trade on the malaise surrounding the Spanish bond auction? This strategist has an idea.

In case you needed confirmation that investors are getting nervous about Europe again, just check out the dismissive reaction to Spain's generally successful bond auction earlier today (Thursday). Euro zone fears are back — but here's a way to trade on them.

"I think we're starting to see central banks diverge in their policies with regards to inflation," says Willie Williams, director of institutional derivative sales for Societe Generale. With a little time to consider policy options since the euro zone crisis first erupted, "Many of these countries have had time to get their houses somewhat in order as we wait for the rest of the European situation to unfold," he adds.

Williams thinks the British pound is looking especially appealing in the current environment, and he wants to buy it against the dollar. He would enter the trade at 1.6000 with a stop at 1.5800 and a target of 1.6500.

You can watch the discussion on this video.



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