USD/MXN Forecast: Dollar Continues to Break Out Against Peso

Christopher Lewis

Anytime you get a move like we have seen over the last couple of days, you will get a pullback, but that pullback should be thought of as a buying opportunity.

The US dollar rallied significantly on Tuesday again as we have broken clearly above the 21 pesos level. At this point, the market continues to see plenty of buyers, and I think here is a market that will continue to be a “buy on the dips” type of situation. After all, the US dollar has been strengthening against most currencies, and Mexico has major issues with inflation at the moment, so that causes a bit of a drag on the economy.

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Oil skyrocketed during the session but could not help the peso, so that tells you just how much strength there is in the greenback at the moment. Because of this, I think we would ultimately see this pair go towards the 22 pesos level, although it does not necessarily mean that has to happen overnight. I would look at a pullback towards the 21 pesos level as being healthy, and a potential buying opportunity as it had been obvious resistance previously. You must keep in mind that this pair is an exotic pair, so the spread will be somewhat wide, but the PIP value is very small. Furthermore, the market also will be likely to move right along with risk appetite, which is a fluid event to say the least. At this point, it looks like the bond buyback program is starting to wind down in the United States, so that has the US dollar looking much more attractive than previously thought. The first hint of a potential global slowdown would be absolutely brutal for this market, so you should keep in mind that as well. Anytime you get a move like we have seen over the last couple of days, you will get a pullback, but that pullback should be thought of as a buying opportunity.

At this juncture, I do not like the idea of shorting this market, at least not until we break down below the 20.50 pesos level, which is about 30,000 feet below current altitude. I continue to favor the US dollar against most currencies anyway, but the Mexican peso will be especially sensitive as the economy in Mexico has been particularly hard-hit by the pandemic. The peso also is the first place people run from in North America in signs of trouble.

USD/MXN

Christopher Lewis

Christopher Lewis has been trading Forex for several years. He writes about Forex for many online publications, including his own site, aptly named The Trader Guy.

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