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How to Trade Europe's Credit-Rating Cuts
13 Jan 2012 EST - CNBC.com

With Standard & Poor's cutting credit ratings for France and others, here's how to trade the changing landscape.

The prospect of ratings cuts in Europe has been on the horizon for over a month, but it still hurt when Standard & Poor's cut ratings on nine countries including France and Austria . The euro tumbled, of course, but Rebecca Patterson , chief markets strategist for J.P. Morgan Asset Management, Institutional, thinks there's a better way to trade the news: looking at countries that really feel the effects of the euro's troubles.

Patterson just returned from a trip to London, she told CNBC's Melissa Lee , and she thinks selling the British pound makes sense. "About 40 percent of the U.K's exports go to the euro area, and a large percentage of U.K. banks have claims on the euro area, so there's a lot of linkages," she says. So when Europe has a problem - or feels the sting of credit-rating cuts - so does Britain.

Patterson wants to sell the pound against the dollar at 1.5295 with a stop at 1.5530 and a target of 1.4800.

Todd Gordon, co-head of research and trading at Aspen Trading Group, says he thinks the trade is "right on," noting that the pound and the dollar have just broken out of a three-year trading range. "That's Rebecca's entry, take the profit down to 1.48, but we're talking long-term implications around 1.30 on the break of this pattern," he says.

You can watch the discussion on this video.

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Melissa Lee Profile, Biography, About - CNBC

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