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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.

How about Mexican stocks? The monthly chart below shows the iShares Mexico ETF (EWW) trading above both the downtrend line (red) and the previous highs (yellow boxes). As noted with the S&P, we may be nearing a short-term peak, but if EWW can hold the breakout (above both the trend line and the previous highs) into month's end it would move into the "buy the dips" camp very quickly.

The next upside target for EWW assuming the breakout holds will be $73.25 – from its current level in the mid-$60s. As mentioned in previous reports, the driver here seems to be the weakness in the US dollar versus the Mexican peso (USDMXN). As noted above, I'm expecting some sort of countertrend rally to occur once USDMXN nears support. However, despite whatever bounce we may see in that currency cross, I do see more weakness there in the intermediate to long-term – so the wind should be in the sails of EWW.

Click to enlarge


What I'm seeing in the fixed income and currency markets tells me that we may see a bit more upside in risk assets in the short-term (perhaps into quarter's end), but that a reversal lower in risk assets / higher in safety will soon begin. Look for signs of a reversal at this point – don't fall asleep while your opponent is going "check, check, check all night" as Mike did to Teddy in Rounders.

Twitter: @tttechnalytics

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