USD/MXN Forecast: January 2024

• The US dollar continued to drift lower against the Mexican peso during the entirety of the winter, in December brought in more of the same.
• That being said, the market is likely to continue to see a lot of downward pressure, as the Federal Reserve has moved its “dots” on the ”dot plot” that it releases at meetings.
• In other words, it looks as if the market is likely to continue to see lower interest rates in the next year coming out of the Federal Reserve. This has massive ramifications against the higher-yielding currency like the Mexican peso.

At this point, the 16.62 MXN level is an area that I am watching quite closely. It was a major swing low, and it looks like we are trying to get down there. If we were to break down below that level, then you have to look at the 16.60 MXN level, because on the monthly chart, it represents a significant amount of support. If we were to break below there, look out below because the US dollar gets crushed.

Interest-rate Differential

The interest-rate differential will continue to be a major influence here, and of course, the idea that US interest rates continue to drop throughout the year will make higher-yielding currencies like the Mexican peso more attractive. There is already almost a 6% interest rate differential between the 2, which is only going to get wider at this point. As long as that’s the case, you get paid to short this market and I think a lot of people are going to continue to look at it through that prism.

Short-term rallies continue to be selling opportunities this month, and the 50-week EMA near the 17.82 MXN level is probably going to be a ceiling unless of course, we see some type of major run toward safety. If we do see a major run toward safety, then the Mexican peso could be eviscerated. I don’t think that’s going to be the case, but it is something to always keep in the back of your mind. All things being equal, this is a market that I think continues to go lower but we may get the occasional short-term bounce the traders will jump on and take advantage of “cheap pesos.”