Sharp Moves in Currencies Could Be Followed by More Sharp Moves -- In the Opposite Direction
The fixed income and currency markets suggest we may see a bit more upside in risk assets in the short-term, but that a reversal lower in risk assets / higher in safety will soon begin.
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Following Up on Mexico
A few weeks back, I wrote that both the Mexican stock market and the Mexican currency were on the verge of significant technical breaks (to the upside in stocks and in terms of the strength of the peso). This was a unique case where currency strength was not to be looked at as a negative for the domestic equity market (EWW), but rather as a sign that their economy was strong / strengthening and global confidence was growing in terms of Mexico being a place to invest resources.
Here’s an updated look at the USDMXN chart:
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Note that the recent lows just above the 13 level were taken out – which opened up a date with the March 2012 lows at 12.5523. Based on the wave count shown on the chart, I actually think that USDMXN is headed much lower than that – eventually. However, the move lower won’t be straight down. I would anticipate some sort of bounce in the cross at around the 12.5523 level. We’ll see what happens from there in terms of how high the bounce may go.
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