- The US dollar has fallen again during the trading session on Tuesday against the Mexican peso, as we are now breaking through the 18 pesos level.
- At this point, it is more likely than not to see some type of play on the interest rate differential, which of course Mexico has more going for it in that particular issue.
- That being said, we are approaching an area that has historically been important, right around the 17 pesos level, so the downtrend may be getting a bit “long in the tooth.”
Looking for Value in the Mexican Peso
I don’t necessarily think that we have a major turnaround coming, but if we do see some type of massive “risk off” type of situation from trading around the world, that will probably work against the peso. Regardless, we would need to take out at least the 50-Day EMA above to make the call to start getting long, which is all the way near the 18.70 level. Even at that point, we would have to see what is going on around the world as far as the US dollar. This pair has recently seen a lot more US dollar weakness than anything else out there, so the Mexican peso has to be thought of as one of the big leaders around the world.
The central bank of Mexico will continue to remain very tight with its monetary policy, and that may be what the biggest driver is. Interest rates in Mexico are much higher, and it looks like they are going to continue to stay that way. That being said, Jerome Powell suggested that the Federal Reserve will have to raise interest rates higher than most people thought, and then of course the interest rate hikes may be coming much quicker than anticipated as well.
As things stand right now, I am much more interested in fading signs of exhaustion after short-term rallies, and that will likely than not continue to be the best way to trade this market. All things being equal, I just don’t see how this changes anytime soon, so with this it is a situation where you are looking for value in the Mexican peso itself. While I do not like the idea of shorting the US dollar overall, this is a strong example of a market that is flying in the face of a lot of other factors.
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