- The USD/MXN initially pulled back during the trading session on Friday against the Mexican peso, testing the 17.50 peso level.
- This is an area that had previously been resistant, and now that we have pulled back to test that for support, it looks like the US dollar may continue to go higher.
- As a trigger, I will be paying close attention to the neutral candlestick from the Thursday session, then I am going to go ahead and start buying, but I also recognize that the 200-Day EMA sets right around the 18-pace level.
Ultimately, this is a market that I think you need to pay close attention to, as it does tend to be very volatile. We recently formed a bit of a “double bottom, and the “W pattern” that we formed does measure for a move to roughly 18.50 pesos. Ultimately, if we can break above that level, then we will leave the 200-Day EMA in the background and continue to go much higher.
Keep in mind that the market will continue to look at this through the prism of risk appetite, and if we do continue to see risk appetite deteriorate, currency such as the Mexican peso and other emerging market currencies will continue to get hammered. It certainly looks at this point as if the 16.75 pesos level has offered a “hard floor in the market”, and if we get any type of scare financially, this market goes much higher.
Looking to Short the Market
The Mexican peso is a gateway currency for Latin America in general, and therefore it can also be used to express an overall attitude on Latin America and as a result, it tends to attract a lot of attention in general. The interest rate differential does favor Mexico, but if we are starting to concern ourselves with risk appetite in general, the Mexican peso is not the currency to hold. Furthermore, there is a worldwide shortage of US dollars, believe it or not, and therefore you will have to keep that in mind when trading exotic currency pairs such as the USD/MXN and others.
All things being equal, if we were to turn around and break down below the 17.20 pesos level, then I might consider shorting again, but I would also need to see the US dollar falling against multiple other currencies simultaneously.
Potential signal: Buying USD/MXN at the 17.73 level, with a stop loss at 17.41, and a target of 18.10 pesos.
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