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Why You Should Buy the Euro Now

Neuchatel, Switzerland
Nelson Minar
Neuchatel, Switzerland

The Swiss franc rose on the resignation of the Swiss National Bank's chairman, and this strategist sees a trade.

When Swiss National Bank Chairman Philip Hildebrand resigned Monday, rattled investors started to question whether the bank would stick to the euro peg it had established for the Swiss franc, and the currency jumped. George Davis, chief technical analyst at RBC Capital Markets, thinks it's an overreaction.

"What we've seen right now is some people are doubting the resolve of the Swiss National Bank in terms of defending that 1.20 floor for the euro-Swiss franc cross in the aftermath of Chairman Hildebrand's resignation yesterday," he says, and he wants to position himself for a reversal of sentiment.

"I think there's a very attractive risk-reward here in the sense that we would be looking to scale into long euro-Swiss positions," he says. Davis wants to establish the trade at 1.2000 and look for a move to 1.2400, with a stop at 1.1975.

He's not exactly bullish on the euro on other fronts, though. Short euro positions are large right now, Davis says, adding that "over the next week, we could see a corrective bounce." But he thinks the euro will eventually fall to around 1.25 against the dollar, and he would sell it on upticks.

You can watch the discussion on the video.

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