The US dollar has rallied during most of the trading session on Thursday but continues to struggle right around the 20.9 pesos level, as it is an area that continues offer plenty of resistance. That being said, the market looks as if the US dollar is eventually going to build up enough pressure to break out, and you can see that I have a couple of moving averages on the chart. The 50 day EMA has broken above the top of the 200 day EMA recently, forming the so-called “golden cross.” That is a longer-term signal that a lot of investors will get involved in, as it is such a bullish sign.
Looking at this chart, you can also see that we are starting to see a bit of an ascending triangle form, and therefore it looks as if the pressure is really starting to build up. The uptrend line underneath also offers support, and at this point in time I believe that the 21 pesos level above is the major barrier that we need to get above. Short-term pullbacks will continue to be supported, especially near the 50 day EMA that is backed up by that trendline. Keep in mind that it is rates in America continue to rise overall, and if that is going to be the case, it makes quite a bit of sense that it would catch up to the Mexican interest rates, despite the fact that they are generally higher.
Another thing you need to pay close attention to is whether or not there is a “risk on” type of situation out there or if it is more “risk off.” If it is a situation where it looks like volatility is picking up, but we will eventually get some type of directionality going, something that we can follow. That is how you have to trade exotic currency pairs like this, you need to hang on to the overall trend for as long as possible. They are not markets that you scalp, but it certainly looks as if the US dollar is trying to make a statement. At this point, I think buying on the dips will continue to work out, but if we were to break down below the 20 pesos level, that would obviously change the entire attitude of the market.
