The US dollar rose against the Mexican peso, as we continue to see rates rise in the United States.
USD/MXN
The US dollar rose against the Mexican peso during the trading session on Friday as we continue to see interest rates in America climb quite drastically. This is a pair that is going to be a little bit different than many others due to the fact that the interest rates in Mexico are so much higher. Even if the US interest rates continue to climb, which they have hit 4.37%, that is still a far cry from the interest rates in Mexico.
So, it is still a carry trade pair. Interestingly enough, if the US dollar starts to strengthen here, it probably has somewhat limited upside due to the fact that we're just trying to reprice the interest rate differential. I don't know that this is the beginning of something major yet, but if we were to break above the 200-day EMA currently sitting at the 18.18 level, that could signify a major shift in attitude.
Interest Rate Differentials and Technical Levels
The market rolling over here opens up the possibility of a drop to the 50-day EMA, but I think at this point that ends up being a support level. With this being the case, the market is going to be one that I think stays in a range, but over enough time will make a bigger decision.
If and when it makes that bigger decision, I think you have to understand that it will be an explosive move more likely than not. That's what this pair does; it tends to grind sideways for a while and then suddenly makes a decision.
I do favor the US dollar against most currencies, it's just that the interest rate differential makes it very expensive to short the Mexican peso at the moment, so I look at this more or less as an indicator.