Matt Weller, CFA, CMT
Faraday Research
It’s been a particularly groggy start to the week with a complete data void and Japan out on holiday. The only meaningful data to come out of today’s European session was the release of German PPI, which did little to dispel deflationary fears by printing at 0.0% m/m vs. 0.1% expected. Unfortunately, this announcement had only a limited effect on the market as most currencies continue to consolidate within last week’s range. With no economic data on tap during today’s US session, it’s worthwhile to take a step back and look at some longer-term patterns.
The USDMXN, though plagued by low volatility of late, has respected its most important technical levels. After dipping to test an 8-month low around 12.80 in early June, the pair rallied back to within a few pips of its 38.2% Fibonacci retracement at 13.12 before rolling over once again. Now, rates have formed a falling wedge pattern over the last five weeks. This pattern is created from a series of lower lows and lower highs, but is generally seen as bullish if rates can break above the upper trend line (currently at 13.00). At the same time, the RSI is forming a corresponding falling wedge pattern, and a breakout in the indicator pattern could serve as a leading indicator for a breakout in the exchange rate itself.
Overall, our bias in the pair remains neutral within the falling wedge pattern, but a breakout above the 13.00 level this week could open the door for a rally toward the 200-day MA at 13.06 or the 38.2% Fibonacci retracement at 13.12 next. To the downside, we expect previous support at 12.83 to put a floor under rates on their first look, but if that floor fails, a more substantial drop could come into play.
Key Economic Data/News That May Impact USDMXN This Week (all times GMT):
Tuesday: US CPI (12:30), MX Retail Sales (13:00), US Existing Home Sales (14:00)
Wednesday: No major data scheduled
Thursday: Initial Unemployment Claims (12:30), US Markit Flash Manufacturing PMI (13:45), US New Home Sales (14:00)
Friday: US Durable Goods Orders (12:30), MX Balance of Trade (13:00)
This research is for informational purposes and should not be construed as personal advice. Trading any financial market involves risk. Trading on leverage involves risk of losses greater than deposits.
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