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The Case for Short USD/MXN

Rareview Macro

Rareview Macro
Visit: Rareview Macro

We view:

  • The 200-day moving average (DMAVG) as a short-term trend change.
  • The 55-week moving average (WMAVG) as an intermediate-term trend change.
  • The 200-week moving average (WMAVG) as a cycle change.

There are many US dollar crosses that have fallen below or are challenging the 200-WMAVG. However, most of them have been oscillating above/below it for quite some time.

The currency cross that stands out or has the “cleanest” moving average break is the US dollar relative to the Mexican peso (USD/MXN).

Weekly are more important than daily closes. Red is more important than blue on a bar chart.

If USD/MXN closed below 19.0344 today, USD/MXN will post its first weekly close below the 200-WMAVG since 2013 on a red bar.

If you incorporate moving averages into your technical discipline, like us, this break lower is a cycle change.

Secondly, today, USD/MXN is set to complete a weekly “reversal pattern” using trendlines.

You can debate the merits of long diagonal patterns or the distance to the apex, but this is the first time a trend line “reversal” has occurred in many years on the weekly chart.  

Below is a chart combining the two technical patterns – 200-week MAVG and weekly reversal.

Here are other ways to think about these technical observations:

  • USMCA is close to being signed;
  • Dollar-Yuan (USD/CNH) is signaling emerging market stability;
  • Real interest rates will not rise materially in 2020 as the Fed is on hold;
  • Short USD/MXN is positive carry, unlike short EUR/USD;
  • Crude oil stability or higher prices should benefit MXN;
  • Long EM vs. short DM in some variation is already the consensus call by sell-side research for 2020.

Conclusion: Expect the “Street” to go after USD/MXN following “weekly” confirmation of a close below the 200-week MAVG.

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This material is from Rareview Macro and is being posted with permission from Rareview Macro. The views expressed in this material are solely those of the author and/or Rareview Macro and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

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