Potential signal:
- I am a seller of this pair on a break below the 18.50 level with a stop at the 18.8 level, and a target 17.75 below.
The US dollar has rallied a bit against the Mexican peso during the early part of the trading session. And this is a market that looks as if it is trying to find the 18.50 Mexican peso level as a bit of floor. This could be a triple bottom, although I think this is a short term thing probably a lot of people out there trying to cover shorting the US dollar ahead of the consumer price index numbers coming out on Thursday.
The size of the candlestick is fairly strong, but I also recognize that this is a market that has been very negative for a while. And I think you’ve got a situation where a rally at this point in time, more likely than not, will offer a short opportunity.
Fading Rallies
This will be especially true if we get anywhere near the 50 day EMA at the 18.87 level and dropping. So the next day or two, I think you could probably watch this for signs of exhaustion. If CPI numbers come out really hot, then that could cause some major issues. But quite frankly, this is a market that I do think goes to the downside. If we were to break down below the 18.50 level, then I think the Mexican peso strengthens even further, perhaps opening up the possibility of a move down to the 17.75 level.
Remember, if you are short, you are collecting swap at the end of every day in this market. Ultimately, this is a market that will continue to be noisy and choppy, but rallies are selling opportunities at the first signs of exhaustion from what I can see. And quite frankly, I’m not interested in buying the dollar against the Mexican peso until we break above the 19 level.
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Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.