- The US dollar rallied rather significantly during the trading session on Friday as the jobs number in America came out stronger than anticipated.
- We did initially pulled back, and that made a certain amount of sense considering that the US dollar was overbought against the Mexican peso, but then we turned around to show signs of strength quite drastically.
- The 18.30 level is now being threatened, as the jobs numbers came out hotter than anticipated.
In other words, traders are starting to bet on the idea of the Federal Reserve keeping interest rates higher for longer, and therefore it puts more pressure to the upside on the greenback, as it becomes much more attractive to own. Furthermore, it also suggests that perhaps inflation will continue to be a problem in the United States, so that could cause more earnings issues when it comes to companies. Remember, Mexico is the number one exporter to the United States, so depending on how the US economy is going, it can have a massive influence on what happens with the Mexican peso.
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Interest rate differential
The interest rate differential still favors the Mexican peso, so it is going to be difficult to get overly aggressive to the upside, and quite frankly if the US dollar is suddenly going to take off against everything, it’s not necessarily the Mexican peso that I want to start buying dollars against. It’s not that the trade cannot work, it’s just that you will be swimming upstream as far as interest rates are concerned. Over the last couple of years, I’ve really started to focus on the interest rate differential and the swap at the end of the day, because it can make the trade much easier to stomach over the longer term when you get the occasional pull back.
The size of the candlestick is rather impressive, just as we have seen a couple of other ones before that. All things being equal, this is a market that I think continues to see upward pressure, but I’m also a bit skeptical of paying for it at the end of every session.
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