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How to Trade the Risk-On Sentiment in Currencies

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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.

You can watch the whole discussion on the video.

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MULTI CURRENCIES v The Dollar

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