The most of September has been very strong for the US dollar in general, but it still looks relatively weak against the Mexican peso. This is because of the massive interest rate differential between the United States and Mexico. After all, the Mexican interest rate is 11.25%! Because of this, it does suggest that perhaps the peso will still be a currency that a lot of people want to own, but there does come a point where risk just isn’t worth it.
- With a strong US dollar, it’s a bit counterintuitive to think that a currency like the peso could outperform it, but that certainly seems to be the case.
- We are in the midst of forming a bit of a bearish flag on the weekly chart, but I have a “line in the sand” where I believe that the trend starts to change.
- This area is at the 18 pesos level, and just above the top of the candlestick of the last week of September.
- Furthermore, the 50-Week EMA is sitting right around that area as well, so if we were to break through that, it would be a technical victory for the US dollar.
Despite the fact that there is a roughly 6% interest rate differential between the 2 economies, the reality is that the US dollar is starting to get a lot of attention, not only due to the interest rates being tight in the United States, but the fact that the global economy may be slowing down. Perhaps even more counterintuitively, the US economy starts to slip, that will punish the Mexican economy even more than the US economy, as Mexico is the largest exporter in the world to the United States. (Mexico just passed China in this aspect.)
Underneath, if the market were to break down below the 17 pesos level, then it’s likely that we go back down toward the low of the last couple of months, which of course breaking down below there then opens up an attempt to get down to 16 pesos. A lot of this comes down to risk appetite, and as long as we don’t get some type of meltdown, it’s very possible that the US dollar continues to slip a bit against the peso. However, if we get some type of panic, and let’s be honest here, we very well could…this pair could take off to the upside.
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