Against the U.S. dollar, the Mexican peso, USD/MXN, has left its 15-month low in the dust. For the past month, USD/MXN has neatly followed its upper-Bollinger® Bands (BBs) straight through a bullish confirmation of a 50DMA breakout and then a bullish breakout above its 200-day moving average (DMA).
The U.S. dollar versus the Mexican peso has been on a tear over the past month (USD/MXN).
Most importantly, USD/MXN has now erased the losses from the last two rate hikes from the Bank of Mexico. USD/MXN now trades back to where it was in the April/May congestion period when the peso churned over NAFTA concerns and the May rate hike. If USD/MXN punches through the horizontal line in the chart above, there will again be little resistance to impede further upside. After such a breakout, the next level to watch is the 20.2 area around the bottom of the approximate head and shoulders (H&S) pattern that marked the 2017 top for USD/MXN (not shown in the above chart).
I was correct to put the Mexican peso on a “short leash” two months ago. Here, I am betting that the current run-up will lose steam as the carry trade begins to look more and more attractive. The stop is of course above 19.30 or so.
Speculators are not as bullish on the Mexican peso as they were over the summer, but sentiment still sits at the peak of the last bullish cycle.
Be careful out there!
Full disclosure: short USD/MXN