Talking Points: US Dollar, Mexican Peso, South Korean Won, USD/MXN, USD/KRW
- USD/MXN formed a false bullish Pennant March-May before breaking down
- Pair broke multi-month support with follow-through, selloff may be extended
- USD/KRW decline could accelerate if resistance holds and support is broken
After forming what appeared to be a bullish Pennant between mid-March and early-May, USD/MXN broke down and proceeded to decline almost 10 percent before bouncing at 21.4134. From there on it traded in a relatively directionless manner until recently. Over the past few days, USD/MXN punctured support at 21.4134 with follow-through.
USD/MXN – Daily Chart
USD/MXN chart created using TradingView
Looking ahead, the next obstacle to clear may be the floor at 20.7621 where the pair experienced some friction during its ascent in early-March. If that too is broken, selling pressure may swell and push USD/MXN lower with an eye at 19.8403. The pair’s weakness appears to be in large part the function of a weaker US Dollar rather than the result of Mexican Peso strength.
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Having said that, apart from the last week or so, strong risk appetite has boosted the appeal of relatively risky assets – like those associated with emerging market economies. This dynamic may have also played a role in punishing USD/MX. However, if sentiment turns sour, the pair may trim its losses.
The aforementioned dynamic may also apply to USD/KRW. After topping at an 11-year high, unlike USD/MXN – which went through a brief consolidative period – USD/KRW quickly retreated. The pair has been guided lower by descending resistance dating back to the March-top and has recently been pushed lower after attempting to clear it over the past two weeks.
USD/KRW – Daily Chart
USD/KRW chart created using TradingView
Looking ahead, as the space between the slope of depreciation and support at 1177.94 narrows, USD/KRW will have to decide on a directional inclination. If resistance holds and the floor breaks, the pair’s decline may accelerate. Conversely, a break above the descending ceiling with follow-through may precede a buying bout.
— Written by Dimitri Zabelin, Currency Analyst for DailyFX.com
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