The USD/MXN pair continues to see a lot of support just below current levels, but in the end, this remains “fade the rally” at this point.
USD/MXN
The US dollar continues to see a lot of noise against the Mexican peso during trading on Friday, as we initially rallied but have since seen the market roll over. All things being equal, this is a market that I think will be very noisy and choppy, but remember you get paid to be short of this market.
In other words, this is a market that isn't as much about the nominal move, although over the longer term that can add up. It's more or less about collecting interest. The swap favors the downside and that's how I trade this pair and in fact, I never buy it, just simply because I do not want to pay for the swap. Regardless, quite frankly, if I want to buy the US dollar, I'll buy it against other currencies that don't have such a wide interest rate differential.
Fading Short-Term Rallies
The 17.5 level above is a significant barrier and it's also where the 50-day EMA currently sits. I think ultimately if we do rally from here, signs of exhaustion will continue to be buying opportunities for the Mexican peso, otherwise shorting this pair.
The 17-level underneath is a massive support level and if we were to break down below there, I think it opens up a move down to the 16.5 level. That's an area that has been a significant support level in the past so therefore I think it makes a nice juicy target.
There is a lot of violence that's going on in Mexico at the moment, but it doesn't look like it's affecting the currency market so don't worry about that in this pair, at least not until that changes. I love the idea of fading short-term rallies in order to take advantage of a market that is decidedly bearish.