- The USD/MXN initially tried to rally during the trading session on Thursday, but the 200-Day EMA just above is causing a bit of a headache. The market has recently seen a series of “lower highs”, and of course “higher highs.”
- This looks like a market that is trying to break out and go much higher, but that doesn’t necessarily mean that it’s going to head in one direction forever.
- After all, there is an interest rate differential as the Central Bank of Mexico offers more in interest rates, but it’s also worth noting that the US offers stronger than anticipated interest rates, and the interest rate differential between the 2 economies has narrowed.
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Another thing to worry about is whether or not there is going to be an economic downturn. If the US starts to struggle, that actually works against the Mexican economy, as it is such a major exporter to the United States and is in fact the largest exporter to the United States as of a couple of months ago. With that being said, if your biggest client is broke or is losing money, that means you aren’t selling anything to it.
Be Cautious
If we can break above the 200-day EMA, the next target would be the 18 pesos level, opening up the possibility of a move to the 18.50 pesos level. Underneath, there is a certain amount of support near the 17.50 pesos level, but we will have to wait and see whether or not that holds. Going into the weekend, it’ll be interesting to see whether people were willing to hang onto a riskier currency such as the Mexican peso, but ultimately, I think we’ve got to recognize that this is probably more or less about risk appetite, and therefore we will have to be cautious.
Remember, when you are trading these exotic currency pairs, they do tend to trend for ages, but when they rip in the other direction, they can be quite dangerous. Anything on a daily close that’s above the 200-day EMA has me interested in going long. On the other hand, if we break down below the 17.50 pesos level, we will have to see whether or not the 17 pesos level holds, and then the 16.75 pesos level.
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