The US dollar rallied against the Mexican peso on Monday as we continue to see more risk aversion in the markets, so the US dollar may get a bit of a bid. Keep in mind that the US dollar is considered to be a major safety currency, and the Mexican peso is not only driven by risk appetite, but it is also driven by crude oil, both of which fell during the trading session.
It is worth noting that the market broke above the 50 day EMA, which is a technical indicator that a lot of people will pay close attention to. As we are above the 20.50 pesos level, the next major barrier will be found near the 20.75 pesos level. Whether or not we get there is a completely different question, but with the size of the candlestick for the trading session it does suggest that there are quite a few buyers out there. Keep in mind that a lot of people are freaking out about the idea of the Federal Reserve raising interest rates, and there is an FOMC meeting on Wednesday. Whether they raise rates on Wednesday or not it is not necessarily what people will be focusing on. What they will be paying close attention to is how the Federal Reserve talks about future outlook.
To the downside, the 20.50 pesos level should offer a bit of support, especially as the 200 day EMA sits just below it. As long as we are in a situation where risk appetite is waning, this pair has a good shot at going higher. If we break above the 20.75 pesos level, we could start to see an acceleration to the upside. This will be especially true if we continue to see a significant risk-on turn of events. The stock markets around the world continue to crumble, so these emerging market currencies such as the Mexican peso are not going to do well in that environment. The most important thing that traders will have to pay attention to in this market is whether or not momentum can continue to the upside. If it does, we could see a huge move going forward, with the occasional pullback offering value. Selling is not something I am looking to do anytime soon.
