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Greenback turns weak on rise in jobless claims

The US dollar rallied against the Mexican Peso last week, mainly on expectations of announcement of sweeping changes that could be brought about in the US tax system.

The steep decline in the price of crude oil also favored the USD/MXN pair’s rally, which recorded a high of 19.29. However, a trader can expect the rally to be short lived due to reasons mentioned below.

The 15% corporate tax rate proposed by the Trump’s administration is quite difficult to pass in the US Senate, argues Avery Shenfield, currency strategist at CIBC Capital Markets.

According to Shenfield, Democrats would not support a corporate tax cut on the assumption that it would lead to an increase in inequality and restrain future spending. So, it can be inferred that the market would react positively to the US dollar only if the proposed tax reforms become a reality. The economic data released last Thursday do not support a rally in the Greenback, either.

México News Network

The industrial activity has slowed down in March, according to the US Census Bureau. The core durable goods orders fell 0.2%, against analysts’ expectations of a 0.4% increase. In February, the core durable goods orders increased 0.5%.

Moreover, unemployment claims hit a four week high of 257,000 in the week ended April 22nd . In the previous week, the Department of Labor reported jobless claims of 243,000. The reported figures were higher than market’s expectation of 241,000.

Even the pending home sales data for March indicated slight economic weakness. After increasing 5.5% m-o-m in February, analysts expected a decline of 0.6% in March. However, the figures came in much lower than expected. According to the National Association of Realtors pending home sales declined 0.8% on m-o-m basis.

On the other hand, In Mexico, the retail sales increased 2.4% m-o-m in February. Similarly, the unemployment rate has decreased to 3.2% in March, from 3.74% a year earlier. The bullish reversal seen in the price of crude oil is also expected to add strength to the Mexican Peso. Thus, economic data is expected to cause a short-term downtrend in the USD/MXN pair.

Technically, the chart indicates resistance for the USD/MXN pair at 19.12. The main line of the MACD indicator has made a bearish crossover below the signal line. Furthermore, the stochastic oscillator is also descending. So, the USD/MXN pair can be expected to move downwards.

USD/MXN Pair: May 1st 2017

USD/MXN Pair: May 1st 2017

By taking a short position in the USD/MXN pair at 19.0 levels, the downtrend can be capitalized. A stop loss order can be placed above 19.30 to have a control over the losses that may arise from unexpected change in trend. The profit can be booked near 18.50.

In a binary market, an equivalent of a short position can be established by investing in a put option valid for a week. The investment should be preferably made when the US/DMXN pair trades near 19.0 in the currency market.


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