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Watch For Downside Weakness & Possible Sell Signal in Mexican Pesos


The prevailing economic problems in Mexico have been well stated for some time.  Even the world's largest retailer, Walmart, has indicated that they are becoming more and more cautions on expansion in Mexico.  Mexican inflation rose by less than expected, leaving little room for the Mexico Central Bank to move higher than their 3% target rate.

Since putting in a low of 0.06333 on March 10, June Mexican Peso futures have been rallying...right into a likely resistance area.

Given the overall downtrend, the recent rally presents an opportunity to get into a short trade should the price reverse back to the downside. A sell signal occurs if the price drops below 0.06624, the March 24 low. A stop loss can be placed just above the 0.06689 March 24 high.

Initial target is 0.06495. That target is in the vicinity of a reversal--potential support--on March 19. The next target is 0.06460--the area where the price launched from on March 18.

Figure 1. Mexican Peso Futures, 4 Hour Chart

While the downtrend is still intact, this has been a strong two-week rally, therefore downside targets are kept conservative to accommodate for the possibility of this being the first wave of a new uptrend.  And fundamentally longer term, as long as the US Dollar continues to gain strength, oil remains low, and Mexican inflation remains stays in check...there are not a lot of bullets for the Mexico Central Bank to use.

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