Mexican Peso: Possible Bullish Breakout (revision 1)

There is a potential bullish ABCD pattern, which closely resembles a flag pattern, developing in the Mexican Peso. This pattern is bullish because of the retracement, which is less than 50%. Anything less than 50% is bullish.  The trigger to this pattern is a break above .05025 before going below .04919. If prices can trigger this pattern before July 20th, then we would have right-handed skewing as well. The skewing shows the momentum, which in this case would be semi-strong. Weak momentum would be skewed to the left (i.e., less bars down to the swing low, and more bars to the breakout high).  The next step is to watch how price moves towards and above the breakout level on a smaller time frame (i.e. 240 min).  So far there are 2 ABCD patterns on this time frame.  Both have deeper than 50% retracements, which signals a weak up trend.  So we have some conflicting signals between the daily and intraday time frames.  These breakout patterns work best when both time frames are in sync.  However, the daily time frame does carry more weight.  Therefore, I anticipate a breakout on the daily time frame that will stall near recent highs (0.05074 to 0.05100).  Then I expect a pullback back below the breakout area.  This could offer a nice entry because there is a volume at price cluster developing as price action has been in potential accumulation mode the past few weeks.

Set-up 1:

Buy the breakout at 0.05026, with stops at 0.04918 for a risk of 540.00/futures contract.  The target of this ABCD pattern would be 0.05174 for a reward of 740.00/futures contract.

Set-up 2:

Don't buy the breakout.  Instead, wait for a potential pullback into the volume at price cluster.  This will lower your risk and increase your reward to risk ratio.  I will give more details on this trade in a follow-up post.  The stop and target would still be the same.

Lastly, we do have some possible upside obstacles that could serve as potential scale out levels before reaching the target zone. The first is between 0.05074 and 0.05100. This zone contains the swing highs from 12-9-20, 1-21-21, and 6-9-21. The next possible scale out would be 0.05123, which is July’s monthly R1 pivot.

Stay tuned for more analysis on this potential breakout.

mpeso