Forex Critical: A Major Breakthrough Eluded Mexican Peso Bulls

Bulls in the Mexican peso successfully reversed all the post-election gains in USD/MXN. Yet they failed to hold onto a big break through when USD/MXN hit a new 6-month low last week. Buyers quickly stepped in and sent USD/MXN right back to its declining 50-day moving average (DMA).


USD/MXN quickly bounced back from a new 6-month low last week.
USD/MXN quickly bounced back from a new 6-month low last week.

Source: FreeStockCharts.com

The latest CFTC data on the Commitment of Traders (CoT) shows that for the third week in a row speculators maintained a level of peso bullishness not seen since the summer of 2014. Yet, the lack of follow-through on the 6-month low demonstrates that the increasing bullishness on the Mexican peso needs more firepower. I am waiting on this firepower before getting as aggressively bullish on the Mexican peso as I would like.

Speculators are maintaining healthy net long positions on the Mexican peso in support of a major sentiment shift that abruptly began in March.
Speculators are maintaining healthy net long positions on the Mexican peso in support of a major sentiment shift that abruptly began in March.

Source: Oanda’s CFTC’s Commitment of Traders

I have had success in fading small rallies on USD/MXN and locking in profits on a resumption of the 2017 downtrend. The 6-month low delivered my best peso trade since I started taking note of the currency’s bullishness. Given the sharp bounce off these lows, I suspect the latest fade will be the toughest to manage yet. The plunge in oil prices after OPEC’s decision to stick with current production cuts certainly helped propel USD/MXN off its low.


The United States Oil Fund LP (USO) seems to be pivoting around its price from right before the U.S. Presidential election.
The United States Oil Fund LP (USO) seems to be pivoting around its price from right before the U.S. Presidential election.

Source: FreeStockCharts.com

Based on prior forex experience, I am not surprised that the peso’s strength is not building as fast as it was when speculators remained confident in their net short positions. Now, on the edge of a major breakthrough, the peso bulls need to summon the will to get one…more…push…In the meantime I am bracing for large swings leading into and in response to the coming U.S. jobs report on Friday, June 2nd…

Be careful out there!

Full disclosure: short USD/MXN

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