- The US dollar initially fell against the Mexican peso during the trading session on Wednesday but turned around to show signs of strength a little later in the day.
- That being said, we are in a very strong downtrend, I think you need to keep in mind that despite the fact that we have at this bounds, we are still light years away from changing the overall trend.
Consumer Price Index
The Consumer Price Index came out hotter than anticipated, reading at 0.4% for the month of March, as opposed to the expected 0.3% by Wall Street. Because of this, it looks like inflation continues to be a major issue and it’s possible that the Federal Reserve may have to stay tight for longer than people want to see it on Wall Street. However, the reality is that the interest rate differential still favors the Mexican peso as the Mexicans offer just under 12%.
At this point in time, I think the knee-jerk reaction is probably going to set up some type of shorting opportunity, and therefore it’s likely that this was just a blip on the radar as far as the longer-term “big picture” is concerned.
Technical Analysis
The technical analysis for this pair looks horrible. That being said, the 16 pesos level is an area that’s been massive support in the past, so a little bit of a bounce makes a certain amount of sense. At this point, I believe that the 16.6 pesos level could offer a significant amount of resistance, followed by the 50-Day EMA above there. We had gotten a little oversold, so a bit of a bounce makes quite a bit of sense as we now have to find some type of equilibrium. Remember, markets do not go in one direction forever.
If we were to break down below the 16 pesos level, then we could see an absolute wipeout, but I just don’t see that happening anytime soon. As far as a trend change is concerned, at the very least I would need to see the 50-Day taken out, and even then, I would have to take a look at a lot of the fundamental scenarios to make that call. As things stand right now, it’s likely that the downtrend will persist over the longer term.
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