This is a market that has pulled back quite significantly, so it will be interesting to see if the momentum can continue.
The US dollar fell a bit on Wednesday against the Mexican peso but still remains well within the overall consolidation area. When you look at the last three trading sessions, we had formed a nice hammer at the 200 day EMA, followed by two shooting stars in a row. The candlestick during the trading session on Wednesday is quite a bit more bearish, but still has not broken down through the bottom of the hammer from the Friday session. In other words, I think that we are still very much in a consolidation area that is worth paying attention to.
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If we do break down below the hammer and the candlestick from the trading session on Wednesday, then it is very likely that we will continue to go looking towards the 20.25 peso level. On the other hand, if we turn around and take out the top of those shooting stars from earlier this week, that would be an extraordinarily bullish sign, especially as the 50 day EMA is sitting at that area and is dropping quite drastically.
Keep in mind that the Mexican peso is very sensitive to the crude oil market but is also sensitive to the fact that the Mexican central bank continues to be very hawkish, like a lot of other emerging market central banks are at the moment. Yes, the Federal Reserve is looking to taper going forward, but that will tighten monetary policy enough to throw the balance in this market. This is a market that is setting up in a nice consolidation area and is very likely to make its next move based upon which direction we break. If we break to the downside, then it is very likely that at the very least we will go to that previously mentioned 20.25 peso level, but I would be more apt to think that given enough time we could go back down to the psychologically important 20 pesos level. On the other hand, if we do break to the upside, it is likely that we will go looking towards the 21 pesos level, where there is a significant amount of resistance. This is a market that has pulled back quite significantly, so it will be interesting to see if the momentum can continue.
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