JCP

USD/MXN tests support

FX:USDMXN   U.S. Dollar / Mexican Peso
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USDMXN Neutral, August5th. 10:00 pm. Spot 13.15

As this chart shows, the USDMXN pair is testing the two supports.

First, the rates now reached the support formed from May - August 2010. The market formed a triple top and failed to break through the resistance. It should now form strong support. The second support is the trend line formed during Oct 2011 and Apr 2012 . In early July 2012, the market tested this pretty notable support, but did not dip lower. It is now once again facing the same support.

Fundamentally, I have not been actively following MXN. Recovering of US and China sends conflicting information on the MXN. One better than expected US NFP figures on Thursday, which was 150,000 compared to consensus 100,000. Better US job market will lead to more exports from Mexico, thus driving the MXN higher. Secondly, China data in the recent month has been good. Decent PMI, from both official stats and HSBC . GDP, though slowed, succeeded expectations. There have been talks that China has bottomed out. If this were truly the case, then increasing competition from China should decrease Mexican exports to the United States, which is MXN bearish .

Overall, I would wait and see how the market is doing. But I do feel that a major trend is about to form. The slow Stoc shows that the MXN is oversold, and the MACD just crossed the center line. But I don't think either of these two indicators send nail-in-the coffin message of whether to buy or sell.

In the MXN bullish case, if the USDMXN dips below 13.00. Then I would sell and take profit at 12.80. With stop loss at current levels--13.15.

In the MXN bearish case, if the USDMXN shoots above 13.30, I would initiate a buy, with stop loss near the trend support line, 13.20. Should the USDMXN hit 13.60, I would take profit on half of the trades, and see how the second half goes.

Comments

Agreed.
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Kind of wrong about the china arguments. since Mexican economy is benefitting from rising chinese labor costs.
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If I were to offer a view, from a purely technical perspective, I would be MXN bullish. The current double-support is so obvious that anyone can notice it. The minor upshot occurred because the market wants to break the support, but some people are buying on the basis of such obvious support. Once the market washes these people away, the USDMXN may trend down lower.
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