How to Trade Collapsing Currencies

There are technical and fundamental reasons for identifying collapsing currencies. When you spot currencies that are collapsing, you can expoit the demise of that currency by pairing it against a much stronger currency. You can gain an edge in Forex trading by leveraging strength vs. weakness.

Let's take a look at the Mexican Peso, for example. Ever since Trump was elected, the "Trump Effect" has had a detrimental effect on the peso. Trump's stance on the border wall, NAFTA and threats of tarriffs on Mexican imports delivered a crushing blow to the Peso.

Since 2017 began, the Mexican Peso has been an absolute mess.

In fact, since January, it fell 16% from 22. 

However, as you can see in this chart of the $USD-MXN, it sat at an extreme low at double-bottom support dating back to November 2016.  To some, this is a great buying opportunity as long as a new base holds at $18.81.  However, in order to do well with a trade like this we must wait for confirmation of trend change prior to taking a position.

 


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There are a few positives here, but also a dangerous negative.

First, we can see that it’s beginning to reverse well off historic lows on MACD, as well as relative strength (RSI).  Second, it’s beginning to find support on the Fibonacci retracement lines where it found previous support about four times prior.

Taken together, we could have a perfect setup for reversal off the lows.

However, if we take a closer look at the 50-day and 200-day moving averages, as the 200 crosses above the 50. That’s a classic death cross sign that could keep us away.

In this example, the Peso could rally off support, or be taken down by the death cross. When you see this happen, you might well be served to remain patient, and wait until the Peso tips its hand.


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and Skills and Get Paid To Trade! Learn How Here