Back in mid-May, we discussed the imminent “death cross” in the U.S.Dollar and the Mexican Peso, along with its possible implications, concluding that “bears [were]looking to drive the pair down to the Q4 lows at 12.83 (December) and 12.75 (October)” (see below for more).
Over the past few weeks, that view has been proven correct, with rates dropping down to support at 12.83 last week before bouncing back so far this week. Now, the pair is testing a critical resistance zone that could help determine where rates will head over the next few weeks, if not the rest of the summer.
With the recent recovery, the USD/MXN is testing strong resistance in the 12.95-13.00 area, which represents the convergence of the following technical levels:
- 50-day MA at 13.00 (note this indicator put a cap on April’s rally)
- 4-month bearish trend line off the late January highs (has now repulsed 4 separate tests)
- Previous-support-turned-resistance (early January and April lows)
- 38.2% Fibonacci retracement of the May drop (not shown)
Furthermore, though the MACD is turning higher, it is still well below the “0” level, indicating that the longer-term momentum remains to the downside. Given the tight confluence of resistance levels in this area, this week’s bounce may simply represent an opportunity to sell into the recent downtrend at a better price.
To the downside, traders should still focus on support near the Q4 2013 lows at 12.83 (December) and 12.75 (October). Only a break and close above 13.00 would erase the near-term bearish bias and expose the 200-day MA around 13.10.
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