The US dollar initially tried to rally on Wednesday, but as you can see, for the last three days in a row we have seen any rally squashed as the greenback is getting beaten up by most currencies. This is going to be a very interesting currency pair to trade because the Mexican peso is being driven by a central bank that is starting to tighten, as well as the crude oil market.
North of the Rio Grande, you have the Americans that are starting to talk about tightening rates as well, as well as tapering the bond purchases that the Federal Reserve have been making. In theory, that should help strengthen the US dollar, but at this point it appears that the Mexican Central Bank is winning the race as far as the tightening argument is concerned. Furthermore, the lack of deaths caused by the omicron variant of the coronavirus has people looking towards the cheaper emerging market currencies as well as stock markets. The Mexican peso has been rallying for some time though, as it was kicked off by the central bank suddenly becoming very hawkish.
Inflation is a concern, but by its very definition, inflation needs a lower dollar to actually behave the way one would anticipate. That is another reason to think that perhaps we will fall from here, but from a technical analysis standpoint, there are a couple of things worth paying attention to.
The first thing is the fact that we are below the 200 day EMA, and it continues to offer resistance. The second thing is that we have formed three inverted hammers in a row, so at this point if we were to take off to the upside and break above the 20.50 pesos level, that would be an extraordinarily stout move by the greenback. I do not see that happening unless we have greenback strength across the board, which currently we do not have. On the other hand, if we break down below the lows of the trading session on Wednesday, it is very likely that we will make a move towards the 20.25 pesos level, followed very quickly by the 20 pesos level. Keep an eye on crude oil, because if it continues to spike that might be reason enough for the Mexican peso to enjoy strength.