- MXN/JPY triangle pattern setting up for explosive move
- Keep an eye on risk trends as price is hinged to stocks
MXN/JPY isn’t a pair we typically discuss here, but given its high correlation to risk trends and a tight triangle pattern, it could be a good candidate for a strong move soon. It’s undergoing one of the tighter periods of trading in recent years, suggesting volatility is on its way…
Generally, the pair has been weak and looks headed lower, but so far risk appetite has kept it buoyed. A breakout from the triangle below 4.63 would likely have price headed lower towards the April/May lows. Stocks will also likely be sagging at that juncture too.
The current 3-month correlation between MXN/JPY and the S&P 500 is 0.63, with at times (especially during times of distress) the coefficient reaching towards 1. This makes MXN/JPY a good stock market proxy to watch/trade in the FX market.
On the downside because of its overall relative weakness to stocks it could be a less troubling risk-trade short than the stock market, which has been like trying to hold a beach ball underwater.
But the pattern isn’t certain to break to the downside, symmetrical triangles aren’t necessarily biased in of themselves, they only point to the likelihood of seeing an expansion in price action. With that in mind, a breakout to the top-side and breach of 4.85 is likely to see MXN/JPY squeeze higher as stocks remain well-bid to rallying strongly.
All-in-all, MXN/JPY is set to move one way or another soon and could offer traders a momentum trade. It can be a volatile pair so keep that in mind when determining trade size.
Recommended by Paul Robinson
Check out the Q3 JPY Forecast
MXN/JPY Daily Chart (triangle set up to break soon…)
***Updates will be provided on the above thoughts and others in the trading/technical outlook webinars held at 930 GMT on Tuesday and Friday. If you are looking for ideas and feedback on how to improve your overall approach to trading, join me on Thursday each week for the Becoming a Better Trader webinar series.
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—Written by Paul Robinson, Market Analyst
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