The US dollar has tumbled against the Mexican peso during trading on Thursday, as we continue to see the “Carry trade” play out in FX markets.
The US dollar has tumbled against the Mexican peso during trading on Thursday, despite the fact that the US dollar has been extraordinarily resilient against most currencies. The central bank in Mexico had recently cut its interest rates down to 7%, but it has also signified that it is going to perhaps slow down its rate cutting cycle due to worries of sticky inflation. What that means is, the US dollar against the Mexican peso now becomes a carry trade pair or, I should say, remains a carry trade pair.
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On top of that, I would postulate that the retail sales number coming out of the United States on Wednesday gave more credence to this idea, as it was extraordinarily strong. Remember, Mexico is a major exporter to the United States, so if there is a lot of retail demand out there, that means some of those products, quite a bit of those products, are actually going to be coming from Mexico. With this being the case, the market is likely to continue to the downside, and you get paid at the end of every day, so I like this as a short.
Short-Term Ceiling
The 18 Mexican peso level is an area that I think is a short-term ceiling, and it is interesting that the 50-day EMA is starting to race towards that region as well. As far as a target to the downside, you could make a very realistic argument for 16.75 pesos before it’s all said and done.
This pair does tend to move in half-peso increments, so keep an eye on that, but all things being equal, if this thing rallies, I’m looking to short it.
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