- The US dollar has been going back and forth during the course of the trading session on Tuesday, but overall, it has been relatively stable.
- In fact, the market has been bouncing around in the 2nd half of the month in a relatively tight range.
- In general, I think this is a market that’s waiting to see what happens longer-term, and of course the fact that the Mexican peso is an emerging market currency, that also has its own special considerations.
FOMC
Keep in mind that the Federal Open Market Committee meeting is on Wednesday, and that obviously will have a major influence on volatility in the United States. After all, the US dollar will be all over the place as traders try to determine what the Federal Reserve will do next. There are a lot of hopes that perhaps they will loosen monetary policy sometime this year, but I just don’t see that happening easily. In fact, the Federal Funds Futures markets are now starting to price in only December being more than a 50% chance of the Federal Reserve loosening monetary policy. However, Wednesday will be all about the press conference.
Keep in mind that the press conference will be parsed quite closely, due to the fact that Jerome Powell may or may not give us a bit of a “heads up” as to what the central bank in America will do. The interest rate differential between United States and Mexico continues to favor Mexico, but at this point in time, there also are a lot of concerns when it comes to the overall economy, and whether or not Mexico can continue to benefit from a strong American economy. If inflation continues to be a major issue in the United States, sooner or later that becomes a problem for the overall economy, which Mexico so desperately needs to prop up its own. After all, Mexico is the largest exporter to the United States now, and therefore the 2 economies are massively intertwined.
It’s worth noting that we are between the 50-Day EMA below and the 200-Day EMA above. As long as we are in this area, you typically see a lot of technical volatility, and therefore it is likely that we will see a lot of noise. However, after the Wednesday session we may have enough momentum in one direction or the other to understand if we are going to drop toward the 16.25 MXN level underneath, or if we are going to make another run toward 18 MXN above.
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