- The US dollar continues to struggle with rallies against the Mexican peso on Tuesday.
USD/MXN
Tuesday was a volatile day for the US dollar against the Mexican peso as it tried to rally initially but failed at the 18 pesos level. This is a large, round, psychologically significant figure and an area where we saw a certain amount of selling pressure about a week ago.
All things being equal, we are in a major downtrend, and I just don't see how this is a market that's going to change its tune anytime soon. We also have to keep in mind that we are at the end of the year, and it does make a certain amount of sense that maybe things quiet down. Part of the gains that we had seen during the trading session on Monday may have been driven by end-of-year profit-taking or it might have just been a bit of a knockout effect from other currency pairs where the US dollar did fairly well.
Market Drivers and Outlook
The difference in this pair of course is the fact that the interest rate differential most certainly favors Mexico. Mexico is the world's largest exporter to the United States. As the US economy goes, so goes the Mexican peso. Marrying the interest rate differential and the fact that the United States economy has been stronger than anticipated makes quite a bit of sense that we would see this pair continue to drift lower.
This is somewhat counterintuitive to some other pairs where you are seeing the US dollar fight quite drastically because the economic news out of the US is better than anticipated. For example, the Euro can't break above the 1.18 level. The British pound seems stuck at the 1.35 level. But here, you actually see that good news out of America is bad news for the US dollar and good news for the competing currency.
Top Regulated Brokers
The interest rate differential pays you at the end of every day, so I do like being short of this market. I think eventually we will go lower. The next couple of days may be somewhat quiet, but if we do get a little bit of a late year profit taking pop, I'm willing to sell into it.
Potential signal: Sell USD/MXN here. Stop loss 18.10, target 17.55 below.
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