- USD/MXN traded choppily on Thursday as shifting risk appetite and global growth concerns drove flows.
- The pair remains in a broader downtrend, with strong U.S. performance typically supporting the peso.
- A bounce toward key EMAs may still attract sellers.
The US dollar has been pretty noisy during the trading session on Thursday as traders continue to see a lot of questions asked about the overall risk appetite of traders and, of course, the global growth situation. Keep in mind, this is a little bit different than most other pairs in the sense that the United States dollar will actually lose strength as the U.S. economy strengthens. And this is mainly due to the fact that Mexico is the world's largest exporter to the United States, and therefore the United States is Mexico's biggest customer.
As Goes the US, So Goes Mexico
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So, as the United States goes, so goes Mexico. If the United States is doing fairly well, that's a big, huge boon for Mexican businesses and therefore demand for Mexican pesos. Furthermore, you have a situation where the interest rate differential in this case actually favors the Mexican peso as opposed to what you see in a lot of major pairs. So, it does make sense that people have been shorting this pair for a while.
The question now is whether or not there are concerns in the US economy, because if there are, then you'll see the US dollar strengthen against the Mexican peso in this environment. If we see that, then the 50-day EMA at the 18.50 level might get tested. Anything above there then has to lock horns with the 18.75 level and then the 200-day EMA.
Once we get to that point, then you start to talk about a trend change. But as things stand right now, I think all we're seeing is a potential bounce that a lot of traders will be willing to short. If the dollar drops below 18.20 Mexican pesos, we're probably going to the 18 level.
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