US dollar continues to try to define a range against the Mexican peso on Tuesday, as we see a lot of noise around the world and in risk appetite.
USD/MXN
US dollar initially pulled back just a touch during the trading session on Tuesday as we continue to see a lot of noisy behavior. We are sitting just above the 50-day EMA, and I think that is something worth watching as it is crucial from a technical analysis standpoint. That being said, I do see the 18 level above as a major resistance point.
If we were to break above that level, then we are looking at the 200-day EMA as a potential barrier and target. I do think we're in the middle of trying to determine whether or not we are going to switch the trend, but this is a pair that I actually don't like buying the dollar in, and not because I don't think it can appreciate; I certainly do think it can, but the interest rate differential is so huge that you need it to be an outside the norm move to really make it payoff.
Interest Rate Differentials and Technical Levels
If we break above the 18 Pesos level, I think you'll start to see the US dollar beat up on a lot of these smaller currencies, the exotic pairs might be the place to be, but you may want to find something with less of an interest rate differential attached to it.
If we break down below the 50-day EMA and then the 17.5 level, that could be interesting because it could send this pair down to 17. Keep in mind that Wednesday is a Federal Reserve interest rate decision and although it is expected to be no change, it is something that will cause a lot of volatility due to a lack of liquidity and of course the parsing of the statement and the press conference.
All things being equal, I think this is a market that is trying to figure out its next move and is stuck between 17.5 and 18 at the moment.