It’s sincerely been quite a yawning FX market during the last few weeks, with a lot of uncertainty about a clear direction to be taken for what many of the major currencies is concerning.
An exception comes from the Emerging Market (EM) space where we have been seeing a good strength against the USD in South African Rand (ZAR), Turkish Lira (TRY) and others; fair to be said that all of these currencies had been previously crushed during the late February sell-off.
The pair giving the most clear signals is however the USDMXN.
USDMXN Daily, 2020
In the days between May 5th and May 14th it has broken to the downside the consolidation triangle in which it was trading . Since then the price has steadily moved south, appreciating almost an 8.5% from 24.30 to 22.25 now. MACD has turned negative and is confirming the move, RSI is still not in oversold area: Bollinger Bands have widened but not have really exploded, indicating a move that could be less violent and probably more sustainable in the mid / long -term.
So, established that the cross is moving down: where is it heading? We think the supports to monitor are 22 (50% Fib Retracement) and more interestingly 21.30 (61.8%) and 20.30.
Be aware that moving to ALL of the minor time frames (from 4h to 15 mins), we can clearly identify OVERSOLD conditions in indicators so it could make sense a pause in the Peso appreciation soon.
Finally, a good idea would be to continuously monitor the USD Index (DXY) while trading these EM crosses as a weaker basket $ will indicate a more confident sentiment in the market and a natural run toward higher-yielding currencies.
By: Marco Turatti