- The US dollar has seen a bit of drifting to the downside in the USD/MXN pair. The Mexican peso has be gaining against the US dollar for some time, as we have been in a downtrend.
- The interest rate differential favors Mexico, so this makes sense from trend standpoint. This trend has been fairly reliable over the last several months, with a brief sideways movement during the summer. This has quietly been one of the better “sell and hold” situations out there, as you could have collected significant swap being short.
Technical Analysis
The technical analysis for this pair is obviously negative and have been since April. The trend kicked off after the US and Mexico came to terms with trade during the tariff spat, and the Mexican economy has benefitted since. Remember, the Mexicans are by far the largest exporter to the United States, and therefore trade is a huge factor here.
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The candlestick for the session shows continuation, and we have just started to break below a “bearish flag” that formed in this pair after breaking below the 18.50 MXN level. This is the next leg lower, and I think that we will continue to see this be the case. However, the 18 MXN level will probably be a massive factor below, as the large, round, psychologically significant number. This typically will be a place where people put their orders on, be it stop loss, take profit, or even an entry order. If we break below that level, then the market could really start to fall hard.
Any rally at this point in time will have to contend with the 18.50 MXN level, and the 50 Day EMA indicator just above there, and the 18.80 MXN level. While this could be a possibility, I suspect you only see that happen if the US dollar really takes off against other currencies around the world.
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