The US dollar has been negative against multiple currencies on Wednesday, with the Mexican peso doing what it can to continue the longer-term downtrend.
USD/MXN
The US dollar has fallen a bit against the Mexican peso during early trading on Wednesday as we continue to see a lot of volatility, but what I have noticed during most of the trading session is that the US dollar strength is starting to pull back a bit. With that being said, the market is likely to continue to see quite a bit of violent moves on short-term charts, but the overall picture for the US dollar against the Mexican peso has been one of negativity and the downtrend looks as if it is trying to continue overall.
The 17.50 level is an area that if we break down below it’s likely that we could see this market drop significantly from there, perhaps in a bid to test the 17 pesos level again. A rally from here will have to contend with the 18 pesos level and it’s not until we break above there that I will be concerned about the downtrend in general.
Interest Rate Differentials and Carry Trade
Quite frankly, the market has recently rallied from a major support level, and I think it does make a certain amount of sense that we eventually got a bit of a bounce, but the interest rate differential still favors the Mexican peso, and the carry trade is still very much alive from a longer-term standpoint.
Ultimately, the 50-day EMA sitting right there at the 17.5 level means that there should be a certain amount of noise in that general vicinity. I do think though that if we can get some nerves calmed out there, we will see the US dollar soften as it had been previously against these higher-flying and higher-yielding currencies like the Mexican peso.