- The U.S. dollar has fallen just a bit during the trading session on Wednesday as the 17.10 level has offered a bit of resistance.
- The market is overdone to the upside, so it'll be interesting to see if we try to break through the 50 day EMA.
- This is a situation that could see a lot of “risk taking” by traders around the world, and the USD/MXN pair will break lower.
If we do, we may revisit the lows. Remember, the interest rate differential in this pair is rather wide, as the Mexican central bank offers 11.75%. Furthermore, you also have to keep in mind that a lot of traders don't like the idea of paying a huge swap to own a pair, and that's exactly what you have to do if you want to go long in this market. With this, I think it’s a tough call to get positive on the upside.
The 200 Day EMA
That being said, if we do turn around a break above the 200 day EMA, it is technically an uptrend, and it's probably worth noting that the $16 level just below the recent swing low is a major support level on the monthly chart. So, at this point, it'll be a very volatile and difficult pair to trade. But a lot of this comes down to what's going on in the interest rate market.
Wednesday seems to be seeing a bit of cooling off in rates in America. And that, of course, helps the USD/MXN pair fall from the lofty levels it reached in just a few short days. However, if the interest rates in America start to spike again, that will certainly turn this pair around and send it higher. Keep in mind that Mexico is an emerging market, and therefore it is a great proxy to play.
But the Mexican peso strengthening makes quite a bit of sense beyond the interest rate differential. The fact is, Mexico is now the number one exporter to the United States as companies move away from China. This is a trend that is only going to continue.
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