Technical Analysis is the study of patterns through graphics that allow us to predict the future behavior of a financial instrument. So in this case I am going to give the technical outlook of the Colombian peso/dollar pair that is to be based on the premise of a "possible" technical formation pattern, which will depend on the presumption that this financial instrument is going to hold the current support level.
Currently, the Colombian peso/dollar pair is going through a technical pattern known as "bullish flag" which has been formed since mid October when the pair touched this year's low at US$1,810. The furious bounce up to US$2,035 level, its consolidation and the low trading during the current month may validate the formation, which will depend on a breakout of the US$1,986 level.
The upside bias is also fed by the Exponential Moving Averages of 20 and 40 days with a bullish cross as well as weekly technical momentum indicators such as the 14,3 stochastic and the MACDm which have recently confirmed the upside bias.
In case of validation, the short-term target level for the Colombian peso/dollar pair will be US$2,250.
Nonetheless, if the Colombian Peso fails to break above the US$1,986 level and breaks below the current support level at US$1,947, there is a high possibility the pair is going to test this year's low at US$1,810.
Author Luis J. Rodríguez is CEO of e-Bursatil.com.co, a website focused on Colombia's financial market
