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How to Trade the Euro's Dip

Friday, 28 Sep 2012 | 2:32 PM ET
Traders work in the ten-year U.S. Treasury Note options pit at the Chicago Board of Trade in Chicago, Illinois, U.S.
Daniel Acker | Bloomberg | Getty Images
Traders work in the ten-year U.S. Treasury Note options pit at the Chicago Board of Trade in Chicago, Illinois, U.S.

The stress test for Spanish banks wasn't pretty, but this strategist sees a buying opportunity.

It's probably not a surprise that Spanish banks are about 60 billion euros short on capital, but still - should the euro rebound?

George Davis, chief technical analyst at RBC Capital Markets thinks it makes sense.

"It was pretty much right on market expectations, right around that 60 billion level, so from that perspective it really isn't a new surprise for the market," he says. Investors, relieved that the results weren't worse, have been covering some short positions, he adds.

Still, even with that move, Davis sees a buying opportunity in the euro.

Buy the Euro Dip?
A currency play on a dip in the euro against the U.S. dollar, with George Davis, RBC Capital Markets.

The currency is still down significantly from its runup after the European Central Bankand the Federal Reserve announced stimulus moves - a correction Davis views as "quite healthy," he told CNBC's Michelle Caruso-Cabrera. Not only that, he says, "I think the ECB bond buying program is going to underpin risk sentiment going forward," which should propel the euro higher.

That's why Davis wants to buy corrective dips in the euro down to the 1.2760 level, setting a stop at 1.2660 and a target of 1.3160.

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 strategies are broken down for you in Currency Class.

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