The US dollar fell on Friday to reach the 50-day EMA before turning around to show signs of support. The previous candlestick was a shooting star that tested the 20.50 level and then pulled back. The fact that we have formed two shooting stars followed by a hammer suggests that we are going to consolidate in general. Further adding more interest in this area is the fact that we have the 200-day EMA, so that will attract a lot of longer-term influence.
If we break down below the 50-day EMA, which is essentially the 20.25 level, then it is likely that the US dollar would fall against the Mexican peso. A lot of this is going to come down to the US dollar overall, as we will see a move in the same direction against most currencies. This will be especially true if we are talking about emerging market currencies, such as the Mexican peso, Indonesian rupiah, Indian rupee, and more.
If we do turn around and break out above the top of the shooting star from the Thursday session, it could send this market much higher, perhaps reaching the 20.75 level, maybe even the 2100 level. That being said, if we see the US dollar breakout here, then I would assume you will see the same action against so many of those emerging market currencies. Keep in mind that the Mexican peso does have a little bit of influence from the crude oil market, but ultimately it is not as aggressive against the US dollar as America produces so much.
If there is more of a “risk-on attitude” around the world, then it makes sense that we will see sellers come into the market. If we see more of a “risk-off attitude”, then the US dollar will almost certainly lift off from here. Because of this, I think it is likely that we will continue to see a lot of back and forth as we are waiting to figure out what the market wants to do, but it clearly does not look like we want to take a lot of risk at this juncture. The market has been very noisy over the last couple of days, so what I would like to see is some type of impulsive candlestick to get involved.
