USD/MXN Forecast: Dollar Strength Tests Resistance

• The US dollar rallied significantly during the trading session on Thursday to reach the 18.50 MXN level.
• The 18.50 MXN level is an area that’s been important multiple times, as previously was major support.
• That’s an area where a lot of people had been buyers previously, but now that we have rallied back to this area, one would have to assume that there is little bit of “market memory” in this region that could offer a bit of resistance.

However, it’s also worth noting that we are closing at the top of the range for the session, so this shows that there is probably some fight left in the US dollar.

Technical Analysis

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Technical analysis dictates in this pair is still very much in a downtrend, as the 50 Day EMA is at the 18.62 MXN level, and is dropping. It’s almost been like a bit of a downtrend line, and of course we have a lot of market memory here that could cause a few headaches. Keep in mind that if we were to take off to the upside, it’s not until we break above the 50 Day EMA at the very least that this market would continue to go higher and perhaps start to bring in more buyers.

All things being equal, this is a market that at the first signs of exhaustion, I anticipate that there is a lot of people will be looking to short this pair, reaching down to the 18.20 MXN level. That is where we had bounce from, and now one would assume that there will be supported in that area.

However, keep in mind that the Mexican economy is highly sensitive to what’s going on in the United States, and if the United States is starting to struggle a bit, then it’s likely that we would see a certain amount of weakness in the Mexican economy, and money would probably run to the US dollar. However, during the trading session on Thursday, we have seen GDP numbers out of the United States show extreme strength, and therefore people are now starting to bet on the idea that the Federal Reserve might not be able to cut rates as quickly as we had thought. All things being equal, I’m looking for signs of exhaustion to start shorting, because quite frankly if I’m going to buy the US dollar, I’m going to do it with less of a negative swap then this pair as the Mexican peso has so much in the way of interest attached to it.

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