- The USD/MXN pair has been very negative for quite some time, as we now find the market testing the 17 pesos level.
- At this point, it continues to be a situation where traders are trying to do everything they can to get yield, and of course the Mexican peso has a whopping 11.25% interest rate.
- Because of this, even though the US dollar has been very strong against most other currencies, the reality is that the Mexican peso far outperforms that.
The Market Is a Bit Stretched
That being said, we are getting a little bit stretched and it would not surprise me at all to see some type of short-term bounce. Then a short-term bounce will almost certainly invite selling pressure, unless of course we have a sudden “risk off” type of environment. That is very possible, and if we were to see that the US dollar becomes one of the favorite currencies for FX traders. However, it’s probably worth noting that we have chewed through a couple of support levels, and now it looks like we could very well drop down to the 16 pesos level during the course of the month. I also recognize that the Mexican peso is highly levered to the crude oil market, so we started to see the crude oil market really pick up momentum to the upside, that could help the peso as well.
Currently, the 50-Week EMA sits right around the 18.80 peso level and is dropping rather rapidly. The 16 peso level is an area that has been important in the past and giving that I will almost certainly send the US dollar much lower. Keep in mind that this is a pair that is overdone, so you will probably be looking for some type of balance in order to take advantage of “cheap pesos.” Regardless, I do anticipate that the noise during the month of July will continue to be very noisy, therefore you will have to be cautious with position sizing, especially when it comes to these exotic currency pairs. With that being said, you should also keep in mind that the spread could be wide in times of extreme volatility, something that I would anticipate during the month. Either way, I don’t really have an interest in buying this pair, unless of course we see overall US dollar strength across the Forex world.
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