The US dollar has been very noisy on Monday, as traders attempt to adapt to a world where there is a ceasefire, but no real sign of the war ending. Interest rate differential continues to favor Mexico.
USD/MXN
The US dollar has been noisy against the Mexican peso early on Monday as the world tries to sort out what exactly is going to come of the mess in the Middle East. The Mexican peso obviously has a higher interest rate offered to it in comparison to the US dollar and therefore it needs risk appetite to continue to see this market drop.
That being said, I also recognize that this is a market that continues to see a lot of questions asked of whether or not energy disruptions are going to cause havoc for emerging markets. In this particular pair things are a little bit different though in the sense that the Mexican economy is almost solely dependent on its exports into the United States as it is the world's number 1 exporter to the US.
Regional Economic Dynamics and Technical Levels
In other words, the better the US economy does paradoxically the worse the US dollar does against the Mexican peso. If we can drop from here I believe we may find ourselves challenging the 17.15 level, an area that had been supported previously and perhaps even breaking below the 17 level that everybody has been watching.
To the upside the most obvious short-term resistance barrier is 17.5 and then after that the 50-day EMA. This is more likely than not going to be a situation where traders will be fading rallies, but it is also worth noting that we have been in a relentless downtrend for some time and we are approaching areas that historically have been at least somewhat supported.