The USD/MXN pair rallied during the session on Wednesday, as we broke above a recent barrier and the 15.45 region. With this, I believe that the market continues to go higher, as we should continue to follow the overall uptrend in channel that I have marked on the chart. With that, I believe that is only a matter of time before the buyers step back into the market when this particular currency pair falls. For most of you out there, trading the Mexican peso might be a bit difficult to imagine. Yes, the spread is wide but in the reality of things, the PIP value is very small. You just have to get around the mental block of having a 300 pips stop. While it sounds like a lot, it really isn’t that much as far as monetary value is concerned.
The Mexican peso is highly correlated to crude oil
What I find interesting is that the Mexican peso is losing value steadily while the oil markets are essentially sitting sideways. You do have to keep in mind that the Mexicans are responsible for quite a bit of the offshore drilling in the Gulf of Mexico, so therefore the Mexican peso does tend to respond to the oil markets. However, the Peso is also considered to be a proxy for Latin America in general. Most people do not have access to such currencies as the Brazilian real, Argentine peso, Colombian peso, or any of the other Latin currencies. Because of this, the Mexican peso is considered to be a proxy for that entire region. You see this in other parts of world, such as the South African rand being a proxy for a huge part of that continent.
With that being said, perhaps this is more or less a flight from Third World countries than anything else. We are most certainly in an uptrend, so I don’t want to sell this pair. I believe short-term pullbacks will offer value in the US dollar, and that we should continue to grind away much higher. I believe that we will head towards the 15.75 region over the next several sessions.
