USD/MXN Price Action Suggests That Trump Could Win The Third Presidential Debate
The third and the final US presidential debate will be held later tonight in Las Vegas at the University of Nevada. So far, Republican candidate, Donald Trump has failed to impress voters with the markets delivering the victory to Democratic candidate Hillary Clinton.
However, if price action is something to go by and especially USD/MXN which has been acting as proxy for Trump's chances at the November general elections, then we could expect the third debate to likely turn out in favor of Trump.
Interestingly, some of the topics selected for the third debate revolve around immigration which has been one of the key issues at the core of Trump's campaign. The economy also features in the list of topics as well which will be a key factor as far as the markets are concerned.
A few weeks ago, I pointed out the coming declines in USD/MXN. However, the retracement towards 19.64 did not occur and instead the dollar continued to post a steady decline. At the time of writing, USD/MXN is seen trading at 18.65 which has been a steady decline after price broke through 19.50 level. There is evidence to suggest that USD/MXN is nearing the end of this short term downtrend with support at 18.54 now in sight, especially after prices breached the support at 18.90.
From a price action perspective, there is strong evidence to suggest that weak short positions closer to 18.80 could be at risk of a reversal as USD/MXN approaches the support zone. On one hand, if the dollar continues to weaken, further declines could be seen pushing USD/MXN towards previous lows near 18.30 region subject to price breaching the 18.90 support level. However, should we expect to see a reversal near 18.90 - 18.60, then a short term retracement back to 19.50 - 19.60 region cannot be ruled out.
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USD/MXN is nearing the support zone
US dollar index looks weak at 98.00 resistance
To understand or anticipate the price action in USD/MXN, it is worthwhile to look at the US dollar index. The chart below shows a topping pattern that could be in play as the US dollar index formed a double top pattern near 98.00 indicating a resistance level in play at the moment. The strong rally has not seen any meaningful pullbacks and the support at 97.00 stands out.
In the near term, we could expect price action to remain consolidated near the 98.00 handle but it signals a possible move to the downside nonetheless. The double top pattern puts the downside target to 97.00 as long as the higher close near 98.00 is not breached, we could expect the declines to come in the near term.
The renko chart below for the US dollar index also shows the price channel that is plotted on the chart which could offer initial clues to the downside if the rising channel is breached.
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US Dollar index Renko chart signals weakness to 97.00 at the very least
Combining the analysis from the US dollar index and applying it to the price action in USD/MXN we could therefore expect to see the declines stalling near the 18.60 – 18.50 region following which we can anticipate the rally to the upside.
The question is of course on the timing of the reversal. In terms of economic data the week ahead will see the Mexican mid-month inflation rate and retail sales data. From the US, the next week is limited in terms of data releases but Friday's GDP report for the third quarter will be a key release of importance. Currently, the Atlanta Fed's GDPNow model puts the third quarter GDP at 1.90%, which is lower than the previous estimates of 2.10%. Although the Q3 number may be better than expected it would be hard to expect growth above the 2.50% threshold and this could potentially act as a drag on the US dollar index.
For the moment, traders who are already short on USD/MXN should be looking to book partial profits at the current levels while awaiting the retracement back towards the 19.00 handle in order to look for new short opportunities.
I/We do not have any positions in the above mentioned instrument.
I like renko charts.