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Trades For a Stressed-Out Dollar

Wednesday, 27 Jul 2011 | 4:38 PM ET

Other than a short rally today, the dollar's been taking it on the chin as Washington squabbles. Here's how to trade it.

How about that dollar? Every time you turn it around, it seems to hit a new low against the Swiss franc, and it isn't doing much better against other currencies.

George Davis, chief technical analyst at RBC Capital Markets in Toronto, says the dollar has broken through some key support levels. What's really driving that, he says, is headlines. Davis is struck by how badly Washington is dealing with the debt ceiling — especially compared to Britain's approach last winter when the push was on to pass an austerity budget. Whatever you may think of treating economic weakness with fiscal tightening, they got it done.

A Play on Stressed Out Dollar
A trade on the U.S. dollar as the nation faces the risk of a downgrade, with George Davis, RBC Capital Markets.

"What really stands out to me is the contrast between what's going on in the United States right now, with the lack of an agreement, and what happened at the end of last year in the UK where we had a very tough budget and fiscal austerity," Davis told CNBC's Melissa Lee.

Davis thinks the British pound should fare well against the dollar right now, and he recommends buying the pound at $1.63 with a target of $1.67 and a stop loss of $1.6170.

That will doubtless suit some of you, but the British pound isn't exactly a refuge in uncertain times. If you prefer a safe haven currency, Davis suggests buying the Swiss franc against the dollar. The Swissie has been on a roll lately, but Davis thinks that can continue. Unlike Japan, where officials keep warning that they may take steps to curb the yen's rise, Davis thinks the Swiss National Bank is unlikely to put the brakes on.

You can watch the whole discussion in the video clip.

Tune In: CNBC's "Money in Motion Currency Trading" airs on Fridays at 5:30pm.

"Money in Motion Currency Trading" repeats on Saturdays at 7pm.

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