Objective: Atypical emotion recognition (ER) is characteristic of children with high callous unemotional (CU)-traits. The current study aims to 1) replicate studies showing ER difficulties for static faces in relation to high CU-traits; 2) test whether ER difficulties remain when more naturalistic dynamic stimuli are used; 3) test whether ER performance for dynamic stimuli is moderated by eye-gaze direction and 4) assess the impact of co-occurring autistic traits on the association between CU and ER. Methods: Participants were 292 (152 male) 7-year-olds from the Wirral Child Health and Development Study (WCHADS). Children completed a static and dynamic ER eye-tracking task, and accuracy, reaction time and attention to the eyes were recorded. Results: Higher parent-reported CU-traits were significantly associated with reduced ER for static expressions, with lower accuracy for angry and happy faces. No association was found for dynamic expressions. However, parent-reported autistic traits were associated with ER difficulties for both static and dynamic expressions, and after controlling for autistic traits, the association between CU-traits and ER for static expressions became non-significant. CU-traits and looking to the eyes were not associated in either paradigm. Conclusion: The finding that CU-traits and ER are associated for static but not naturalistic dynamic expressions may be because motion cues in the dynamic stimuli draw attention to emotion-relevant features such as eyes and mouth. Further, results suggest that ER difficulties in CU-traits may be due, in part, to co-occurring autistic traits. Future developmental studies are required to tease apart pathways towards the apparently overlapping cognitive phenotype.