Price & Time: USD/MXN Back At Crossroads
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- USD/MXN stalls near 1-year standard deviation channel
- Key timing relationships this week for the peso
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We last wrote about USD/MXN in August (read HERE). Our view then was that the break of critical price/time resistance at the 16.4900 July high indicated the move higher in the exchange rate was far from finished and that a much more important run higher was in the offing. That is pretty much what we got as USD/MXN traded to a new record high as recently as last week.
There is a big misconception about cycle analysis. A lot of people believe that it is only really useful in trying to identify tops and bottoms, but I have found that it really isn’t the case at all. Sure trying to identify turning points is one aspect of cycle work, but it is a very limited way to use time analysis. Often times some of the best moves come from broken relationships. The high in USD/MXN from July, for instance, was a 3-year cyclical relationship. It should have held longer than a couple of weeks and the fact it did not was very telling and a huge red flag that the trend in the exchange rate was nowhere near finished.
I bring all this up because USD/MXN is at another important long-term timing relationship this week and how spot reacts after this week should prove very telling. Since running into strong resistance near the top of the 1-year standard deviation channel late last month, USD/MXN has had trouble making any sort of material upside headway. It is also interesting to note that the two peaks from the past month or so have come around the 50% percentage move off the 2011 low so there is some natural resistance around here. Traction above those 17.3000 highs after this week would be very positive and set the stage for another important push higher. Another failure, on the other hand, around 17.3000 followed by weakness after Friday under the 50-day moving average would warn that a more important correction is taking shape in USD/MXN.
--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com