- The US dollar has rallied a bit against the Mexican peso during the trading session on Monday, as we have seen US dollar strength overall.
- The greenback did the same thing against its northern neighbor, Canada, and therefore it looks like it’s an overall US dollar rally.
- That being said, this is not exactly a strong looking market, and the fact that we are at an extremely low level that is heavily supported is the only reason I bring this pair up at the moment.
Technical Analysis
Depending on the timeframe you are looking at, you can get a completely different picture in this pair. On the daily chart, this pair looks absolutely horrible, as it has been a straight line down essentially since the middle of January. The 50-Day EMA sits well above, and therefore one would have to assume there will continue to be a lot of downward pressure.
That being said, when you look at the longer-term monthly chart, it’s worth noting that the 16 pesos level is a massive support level going back multiple years. It’s possible that traders are stepping in to pick up “cheap greenbacks”, but that’s going to be more or less an investment, and a very dangerous trade to be involved in as you will pay the interest rate differential at the end of the session each day. After all, Mexico offers 11.75% at the moment.
In general, I do think this is a pair this with watching, not necessarily to trade, but it might give you an idea as to where emerging markets in general may go. If we continue to see money flowing into Mexico, that probably will be a sign as to how the US dollar will perform against multiple emerging markets. However, it’s also worth noting that there is a ton of money flowing from the United States into Mexico as it is gearing up to be America’s “next China.”
As manufacturers are leaving China, they are finding Mexico a viable alternative. In fact, I think that’s going to be the main theme for quite some time, especially if the Mexican government can get a handle on some of the corruption in that country. Quite frankly, Mexico could be one of the better performing economies in the world over the next 20 years.
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