USD/MXN
The US dollar broke down a bit during the trading session on Tuesday, reaching towards the 20.1665 level, touching the uptrend line of the rising wedge that I have marked on the chart. This, of course, is a negative sign, assuming that we can break through it. If we do continue to break down a bit from here I think we will probably go to the 20 peso level rather quickly, perhaps down to the 19.50 peso level after that. Keep in mind that we are a bit overextended, and now we are getting noisy in an area that perhaps is a sign of distribution.
If we turned around and rally from this trendline, we probably will go back to the 20.50 peso level next, perhaps even the 20.60 peso level. In order for this to continue to go higher, I think we are either going to need some type of major “risk off” event to drive the value of the US dollar higher, or perhaps see oil break down could be reason enough for this market to go higher as well. Remember, the Mexican peso is highly influenced by crude oil, but it’s also highly influenced by Latin America and emerging markets in general.
Longer-term, I think we are getting close to the top of an overall consolidation area, so a pullback from here does make sense. If oil can rally a bit and stay above the $50 level in the WTI Crude Oil contract, then it’s very likely that the peso will pick up a bit of strength. Ultimately, I believe that the market does look as if it is trying to “lean” to the downside. Just below, near the 20 peso level is the 50 EMA, which of course could offer a little bit of support.
