- This pair has drifted a little bit lower during the trading session on Wednesday, despite the fact that the US dollar at least been fighting back.
- This suggests to me that the good news coming out of the ADP jobs report has people thinking that perhaps the US economy is going to remain resilient.
- This is a chart that is upside down in that sense, and the fact that the Mexican peso tends to do better with the US economy performing so well, as it is the largest exporter to the US.
The carry trade has been a big driver of where this is going, and although Mexico's Central Bank cut rates to a 7% level in late 2025, they have signaled that they are data dependent on the next cut and therefore they are going to slow things down. The yield differential between Mexico and the United States is about 3.5%, so it does make it attractive to hold pesos.
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The economy has surprised to the upside in late 2025 in Mexico, with strong employment; unemployment is about 2.7%, bolstering confidence. There are mixed signals from the US economy, but really, I think the US economy is probably going to outperform over the next couple of months, and in this case, that is good.
The technical analysis has its eyes on the 18 level, and then after that, you have the 18.17 level, which is where the 50-day EMA is. I think this is a major sell-the-rally type of situation, and I do think that eventually the Mexican peso can find itself down near the 17.60 level.
As far as buying is concerned, we would need to see a major shift in the fundamental landscape and probably clear at least the 18.5 level.
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