Archive for October, 2013

A Symmetrical Triangle (Coil) on USDMXN

So, I have passed my CMT Level 1. Hooray! First milestone on my new journey reached again. I didn’t know what Diffusion Indicators were, but appears to be something similar to an AD measure. This can also be used for economic indicators, which reminds me of the heatmap on Zerohedge of global PMIs a few months ago.



An excellent pattern is forming in the USDMXN chart. The few days of volatility in late October (during the government shutdown and the debt ceiling crisis) have further cemented the two support and resistances binding this 3-month old pattern. The lookout is for a break on either side.

Other indicators are certainly helpful. Right now, the CMF is slowly creeping above the zero line, which indicates there is an increasing volume of buyers (though for FX, it is calculated without volume but with momentum).

Post-break, if it is downwards, then the Ichimoku indicator certainly gives quite excellent signals. For the break lower, instead of opening a sell position right at the break, I would wait for the lagging span to at least close below the base of the cloud support, marked out as position 3. Target price for this would be 60% at 12.500 and the rest at 12.275.

For an upside break, there is a quite hard resistance region at 12.950, the flat line (4) for most of the cloud supports and resistances. The upper line of the triangle will intersect it on 10/28, giving a break upwards on days near that more importance. The two birds one stone move (break of 12.950 Ichimoku resistance and trendline resistance) will also place the pair above the thin cloud region, giving a bullish signal. To prevent whipsaws, a close above the fib of 13.023 will be more preferred, which was also the start of the gap a month or so back. Target would be the (new triple) top of 13.360.

On a fundamental view, even though Cal Professor Janet Yellen is in the Chairman seat at the Fed, the dollar is still expected to gradually strengthen as yields recover. Though there might not be any announcements about the taper given the volatility from July to September, the market itself might slowly adjust to more expensive credit. With the S&P also at all time highs, buying dollars shouldn’t be a problem if there is a move towards risk aversion. Hence my bias is towards a stronger dollar (and a break to the upside), though I shall be waiting on this chart.

To the best of good buys.

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