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USDMXN Nearing Levels Not Seen Since 2018

January 17, 2020 9:30 AM

USD/MXN has been in a symmetrical triangle since April 2018.  We have patiently been waiting to see which way it would break out as price approached the apex of the triangle.  As rumors began to swirl that the United State-Mexico-Canada Agreement (USMCA) could be ratified by congress, the Mexican Peso began to strengthen.  The strong bid in US stocks as also helped the commodity currency to go bid.  Even in the face of the Central Bank of Mexico lowering rates to 7.25% (4th straight meeting the Central Bank has cut), the currency still is strong!  The USD/MXN finally broker lower out of the triangle on December 11th, 2019 and is currently hitting lows not seen since October 1st, 2018, below 18.7300.  

Source: Tradingview, FOREX.com

As price was breaking lower from the triangle, it formed a new downward sloping channel.  Notice that as price is moving lower, it is in the middle of that channel, so there is still room left on the downside.   But also notice that for the moment, price is diverging with the RSI, indicating we may see a reversal soon.

Source: Tradingview, FOREX.com

On a 240-minute time-frame,  we get a closer look of price breaking the October 2018 lows (green line) at near 18.7500.  However, as with the daily time-frame, USD/MXN is diverging with the RSI.  In addition,  the pair is running into trendline support from the downward sloping channel it has been in since December 12th. 

Source: Tradingview, FOREX.com

Resistance comes in above at the top channel trendline on the 240-minute chart near 18.9000.  Above that, also on the 240-minute chart,  is horizontal resistance and prior highs near 18.9750.  If price breaks above there, there is a large confluence of resistance levels between 19.2000 and 19.3000 (see daily chart above), which includes the 200 Day Moving Average, the downward recent downward sloping trendline (green) and the long-term upward sloping trendline.  First support comes across on the 240-minute chart at the lower channel of the trendline, just below current levels, near 18.6850.  Next support is near 18.40 on the daily timeframe, which is a confluence on the daily of the downward sloping trendline (green) and horizontal support.

Next Thursday, inflation data for Mexico is going to be released (2.9% expected).  If inflation is weaker than expected, will USD/MXN bounce?  The USMCA is sitting on President Trump's desk waiting to be signed.  Will there be a "buy the rumor, sell the fact"?  Will the near-term channel support hold?  Will we see a bounce given the RSI divergence on both the daily and 240-minute timeframe?   Possibly.  However, being aware of important levels where price action may change is a major part of pre-trade analysis.

 

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