At this point, you have to ask whether or not the carry trade could come back to the Forex markets.
USD/MXN
The US dollar initially rallied against the Mexican peso during early trading on Tuesday, which made a little bit of sense considering we sold off so hard and then turned around to show signs of continued noise. It also makes quite a bit of sense considering that there is so much going on in the world, it is hard to get a risk-on type of rally.
That being said, we have rolled over since then, continuing the overall trend. Remember, you get paid to short this pair at the end of every day as the interest rate differential is so wide between Mexico and the United States.
Key Support and Resistance Levels
I am watching the 17.50 level very closely because I think it is an area that not only had been resistance recently, but if it offers support now, we will see whether or not the US dollar can turn things around. If it cannot, then it is likely that we could go down to the 17.20 level.
Anything after that opens up the possibility of moving to the 17 level. Rallies at this point still have a lot of resistance near like 18 or so, and 18 I think is your ceiling for the barrier that would be very difficult to overcome.
If we could overtake the 18 Mexican peso level, then I think the trend is in the process of changing. That would definitely be with risk appetite destruction. Now, while that could be a nice trade to the upside, keep in mind you are paying swap at that point, so you need explosive moves. You cannot have a grind higher; it has got to be something that really moves. Otherwise, if you want to buy the US dollar, you can buy it against multiple other currencies.