The USD/MXN has seen a lot of volatility during November, ultimately dropping down toward the 17.06 pesos level, only to turn around and bounce at the end of the month. The question of course is whether or not the dollar can retrace some of its losses, or if this is just a simple bounce after an oversold condition.
It’s worth noting that we are currently right at the 50-week EMA and the 200-week EMA indicators, which is a bit of a formidable barrier, but we have sliced through it previously, and, likely, it will only be slight resistance in and of itself. If we can break above them, then I think it opens up the possibility of a move to the 18 paces level, which of course is a large, round, psychologically significant figure, but I also believe that more momentum could enter the market, sending the dollar to the 18.50 level above there, an area that previously had been massive resistance. It does make a juicy target for US dollar bulls, so keep that in mind if we do take off.
We are Most Likely Facing a Turbulent December
The interest rate differential course favors Mexico, but there are a lot of concerns out there when it comes to the global economy and the fact that we could be heading into a recession. In times like this, people start to throw money at bonds, something that we have seen in the United States, and therefore it makes the US dollar a little bit more attractive compared to emerging market currencies. Furthermore, the Mexican economy is highly dependent on the US economy, for manufacturing contracts, remittances, etc.
With this being said, you should probably keep an eye on the 18.50 level above, because if it does get breached on the upside, the market could start to take off. On the other hand, we drop below the 16.80 pesos level, this pair will likely continue to drop significantly. While I do think that the US dollar is a bit oversold against most currencies, the reality is that we probably have a pretty messy December ahead of us, especially as we approach the holiday season, which is typically very thin trading to begin with. We are at a point of inflection and need to watch all of these levels very closely.
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