- The US dollar rallied slightly during the early hours on Monday as it looks like we are trying to break above the 19 MXN level.
- I recognize that we had pulled back a bit over the last couple of sessions, but quite frankly were in a situation where a lot of concerns around the world will continue to have people looking for safety.
- In that environment, the Mexican peso is probably one of the last places that people go looking toward.
Ultimately, the carry trade has blown up, and it’ll be interesting to see how this plays out. After all, the hedge funds that had been borrowing in Japan and investing in Mexico have lost a ton of money. If we see a return to the carry trade, that should help the idea of the Mexican peso going higher, and therefore sending the USD/MXN currency pair lower.
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Technical Analysis and Risk Appetite
The technical analysis course is that we have pulled back rather significantly, and we are getting close to the 50% Fibonacci retracement level from the most recent surge higher. However, we also have to look at this through the prism of a market that is more likely than not going to continue to react to geopolitical issues more than anything else. Furthermore, macroeconomic forces cannot be ignored in this pair, because quite frankly you are talking about an emerging market currency that is highly sensitive to whether or not people are going to invest in smaller economies.
Ultimately, if the market can break above the 19 MXN level, then I think we have a real shot at a continuation toward the 19.48 MXN level, then eventually the 20 MXN level. On the other hand, if we break down from here, the 50-Day EMA could come into the picture at the 18.25 MXN level, as it is typically used for technical support. All things being equal, I do favor the upside, but I also recognize that we have a lot of choppiness and of his.
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