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How to Trade the Dented Pound

Friday, 23 Mar 2012 | 2:52 PM ET
Tower Bridge and City of London financial district
Source: Dominic Burke | Getty Images
Tower Bridge and City of London financial district

Faltering confidence in the U.K.. has hit the British pound, and this strategist sees a buying opportunity.

The British pound has been taking a bit of a beating on disappointing U.K confidence data, but George Davis, chief FX technical analyst at RBC Capital Markets, thinks the Japanese yen is the one to avoid.

"One of the interesting dynamics that we've seen in the market over the last few weeks is a number of bearish breakouts for the yen," he told CNBC's Scott Wapner - and not just against the dollar. "That's the genesis for the trade idea."

Seasonal Flows Strengthen Yen?
The British pound dipped after a report indicated lower confidence in the UK. George Davis, of RBC Capital Markets, explains why that's creating a buying opportunity in the Japanese yen.

Davis thinks it's time to buy the British pound against the yen, entering at 127.50 with a stop at 124.50 and a target of 137.00 even.

"We view this as a major potential macro theme to keep an eye on over the next six months or so," he adds.

Davis is considerably less bullish on the euro because of the ongoing problems in the euro zone periphery. "The risk is that because of those issues, we could see a retest and a break below 1.30" against the dollar, he says.

You can watch the discussion on the video.

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