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Here's an intercurrency spread trade recommended by BNP Paribas SA. A spread trade is when you sell one currency and buy another, looking for the trade to go in your direction. In this case, the recommendation is to sell the U.S. dollar and buy the Swiss Franc. This means the expectation is for the dollar to go down and the Swiss Franc to go up.
BNP Paribas is one of the world's largest currency traders. The basis for the trade is technical. In other words, the recommendation is made strictly on price movement, without regard for fundamental factors such as strength of one economy over the other.
Analyst Andrew Chaverial, writes in a note to investors quoted by Bloomberg that the dollar has risen 7.6% to 1.0795 versus the franc on February 5, just shy of 1.0825. This level represents a 38.6 Fibonacci retracement of the dollar's 2008-2009 decline.
The dollar has rallied 5.1% since its January low of 1.0131 and 7.6% from its low of 0.9918 on November 26.
This trade can be placed on the Chicago Mercantile Exchange (CME). In order to execute it, investors would sell futures contracts in the U.S. dollar index and buy futures contracts in the Swiss Franc. The trade can also be placed on the FOREX market.
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