The USD/MXN pair is one that a lot of you probably don’t trade. I feel this is unfortunate, simply because it is an easy pair to trade at times. Granted, the spread is a little bit high, and it’s not exactly a major pair, but at the end of the day the fundamentals are quite easily understood at times. After all, while most of the world doesn’t know this, the Mexicans actually extract quite a bit of petroleum thereby making this a somewhat petroleum related currency. This is a lot like the Canadian dollar, or the Norwegian krone.
On the other hand, Mexico is considered to be the “Gateway to Latin America.” In other words, if you are trying to play something based on Latin American strength or weakness, the Mexican peso is probably the currency of choice at this point. The other Latin currency simply are not liquid enough to be bothered with.
As goes America, so goes Mexico.
Eventually, as the American economy improves, the Mexican peso tends to do a little bit better as it is an area where a lot of American goods are sent down to be produced. On top of that, a lot of money flows back into Mexico by illegal immigrants sending money home. It’s not talked about much, but it is a major factor at times.
From a technical point of view, I see a downtrend line on the daily chart that being tested. The market is sitting just below it, and has formed a hammer at the 13.1100 level. This of course is a somewhat large round number, and the fact that we are seeing pressure to the upside against this downtrend line makes this pair worth watching. If we get a sudden selloff in crude oil, we could see this pair spike above that trend line. On a daily close above the 13.1600 level, I believe this market could breakout for some time. Don’t expect a smooth straight shot up, but rather a gradual appreciation of the US dollar against the Mexican peso. If we get the breakout, I would target the 13.4600 area.
