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How to Trade the Risk-On Sentiment in Currencies

Friday, 23 Dec 2011 | 3:04 PM ET
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Terry J Alcorn | iStock Exclusive | Getty Images
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Decent economic reports from the U.S. are fueling risk appetite - for now. Here's how to trade it.

Risk-on currencies are on a bit of a roll, thanks to respectable economic news from the U.S., but George Davis, chief technical analyst at RBC Capital Markets, doesn't expect it to last.

"A lot of that is related to portfolio adjustments and position squaring heading into year end," Davis told CNBC's Scott Wapner. "As we get back to January, we're going to see a return to the risk off type of environment" as Europe's problems comes back into focus.

For now, though, Davis likes a trade that's supported both by risk appetite and by fundamentals: buying the Canadian dollar against the Swiss franc.

On a relative basis, Canada's growth looks robust, Davis says, and as for the Swiss franc, "we continue to think that there's a risk that the Swiss National Bank is going to raise the floor for euro-Swiss from the 1.20 level toward 1.23 or 1.25."

Davis wants to buy the Canadian dollar against the Swissie at 0.9150 with a stop at 0.9000 and a target of 0.9500.

The Risk Trade and Pops & Drops
Sharing insight into recent weakness in the Swiss franc and strength in commodity plays like the Australian dollar, with George David, RBC Capital Markets. Also, the FMHR traders report pops and drops in today's market.

You can watch the whole discussion on the video.

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MULTI CURRENCIES v The Dollar

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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