When I last wrote about the Mexican peso three months ago, I described the NAFTA-driven context surrounding the breakdown of USD/MXN below its 50-day moving average (DMA). I was still holding onto a long-standing short on USD/MXN. I managed to keep holding this short until Wednesday evening (April 4, 2018).
The Mexican peso is sustaining a 200DMA breakdown versus the U.S. dollar. USD/MXN also confirmed 50DMA resistance during this move.
I closed my short and took profits after waiting through a period volatile consolidation during which USD/MXN confirmed 50DMA resistance several times. The resulting pattern looks like a mini “head and shoulders” type of top. Still, I ended the trade here because I think the risk/reward is starting to favor a USD/MXN (relief?) rally back to resistance. I simply did not want to wait through such a move only to risk a break through resistance. Even the prospect of continuing to collect on the large carry from the wide yield difference between the two currencies was not enough to warrant risking such hard-earned profit.
Additional headlines notwithstanding, I am not likely to trade the peso against the U.S. dollar again until a resolution of a test of resistance and/or a fresh low that breaks through the low of last summer.