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Is Risk Aversion History?

Thursday, 14 Jun 2012 | 3:53 PM ET
Bull Market
Stockbyte | Getty Images
Bull Market

Economic reports are dicey and Greek elections are looming, but this strategist thinks it's time to put risk on.

Yes, there is a Greek election coming up with potentially serious implications for the euro zone. And yes, economic reports have been mixed at best lately. But Camilla Sutton, chief currency strategist at Scotia Capital, thinks this is no time to take cover.

Looking at trading patterns in the euro, she says, "the risk aversion move seems to be running out of steam."

When traders are seeking havens from risk, market moves tend to be violent, Sutton told CNBC's Simon Hobbs. But lately that hasn't been the case. In addition, she says, the growth outlook for China seems to be stabilizing. And "when we look at the Fed next week, it's pretty tough to be long dollars going into that." Putting all that together, she says, "."

So Sutton wants to buy the Australian dollar against the greenback, entering at 0.9980 with a stop at 0.9880 and a target of 1.0220.

"I think it makes for a great trade after a period where we have not had a lot of risk on most people's books," she says.

The Greek elections are obviously a risk factor, but Sutton points out that euro positions are extremely short, and exit polls suggest that the results could prove favorable for the euro. The common currency's ability to maintain around 1.26 is also important, she says.

"The average in euro since its inception is way down at 1.21. We're still way above there," the says. "The markets are desperate for it to be short, but the truth of the matter is that it has resiliency."

Money in Motion: Euro Trading Higher
Camilla Sutton of Scotiabank, offers insight on how to trade currencies amid Europe's uncertainty. "Risk and reward is best in currencies that have less binary risk," says Sutton.

You can watch the discussion on this video.

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