USD/MXN and Other EM Currencies may be Topping

Joe Perry CMT Forex Analytix

Mexican President AMLO has been slow to pull the trigger on a large stimulus plan as many other countries have done. However, on Sunday he established a public works program to help the poor and to create jobs. In addition, he created a program to provide low interest rates loans to boost small businesses and housing.

Emerging market currencies, in general, have been getting hit over the last few weeks. However, after putting in all-time highs on March 24th, USD/MXN appears as though it may be ready for a pullback. Although there is still half the day left in US trading, the pair appears to be putting it a shooting star candlestick formation, after spiking through the all-time highs to 25.78 in the Asian session. This is an indication of a possible reversal as bears overtake the bulls (on a possible short squeeze above the highs) and push price lower, closer to the open. In addition, the RSI is diverging from price as it is nowhere near a new high, as price had done.

Source: Tradingview, FOREX.com

On a 240-minute USD/MXN has put in a bearish engulfing candlestick formation at the highs, which is also considered a reversal formation. The pair is close to support near the 38.2% Fibonacci retracement level from the low on March 26th to todays highs near 24.6590. There also horizontal support near this level. If price breaks lower from here, the next support would be the 50% retracement level and trendline support near 24.3152. Below here is the 61.8% retracement level from the same time frame at 23.9700 and final horizontal support at a full retracement of the recent move, at 22.85. Resistance is at today’s highs near 25.77.

Source: Tradingview, FOREX.com

Is this move in USD/MXN solely related to the fiscal moves by President ALMO? Probably not. The reversal nature appears to be common today across other emerging market pairs as well.

After the USD/ZAR put in all-time new highs today at 19.34, the pair is reversing and has pulled back into the body of Fridays candle and is currently down 1.6% today.

Source: Tradingview, FOREX.com

And USD/BRL is currently putting in a bearish engulfing candlestick formation today, down 2.15% near 5.2350 after putting in an all-time high at 5.3529 on Friday. The RSI is also diverging with price.

Source: Tradingview, FOREX.com

Although Mexico has finally put in measures over the weekend to help the Mexican economy, today’s move in USD/MXN may not be solely because of that. Other Emerging Market currencies are also taking a breather vs the US Dollar as pairs need to unwind a bit after a strong move higher.

Author

Joe Perry CMT

Forex Analytix

Joe Perry is currently Global Head of Business Development at Forex Analytix. From 2000-2018, Joe traded at SAC Capital Advisors and then Point72 Asset Management. He has traded foreign exchange and commodity futures for the last 20 years.

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