Technical Analysis

USD Testing Major Trend Line Against Peso

The Mexican peso is not something that you trade for a quick smash-and-grab; you have to be a swing trader, so you should look at it through the prism of having plenty of time to build up your size.

The US dollar fell a bit on Friday to test a major trend line. The trend line has been in effect since September, and the fact that we turned around to form a bit of a hammer suggests that we are going to try to defend this area. If we can break above the top of the hammer, then we could turn around and go looking towards the 50 day EMA which currently sits at the 20.80 level.

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That being said, the 200 day EMA sits just below, and I think it should offer a bit of psychological support considering that we are near it as well. With this, I do like the idea of going long, especially as we have seen such a deep correction but a slowing down of the momentum. If we can take out the 50 day EMA, then the next target would be the 21 level, and then the 21.30 level.

Keep in mind that inflation in Mexico is running kind of hot, but it is in the United States as well. Quite frankly, the tightening of monetary policy in the United States should start to have an effect on this pair as well. Mexico had raised rates previously, so that has been part of why the market had pulled back so drastically. Nonetheless, this is an area that should see plenty of interest based upon not only the reasons mentioned previously, but the fact that the area has seen a lot of noisy and choppy behavior to begin with. In other words, there is a lot of order flow in both directions, so with that being the case I think it is only a matter of time before we get the bounce that am looking for.

The markets do tend to be very choppy, and the spread can be quite drastic when you have thin trading conditions, so you should be very cautious with your position size, and only add as the trade starts to move in your favor. The Mexican peso is not something that you trade for a quick smash-and-grab; you have to be a swing trader, so you should look at it through the prism of having plenty of time to build up your size.

USD/MXN

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