The US dollar fell against the Peso, but turned things around later in the day.
USD/MXN
The US dollar fell against the Mexican peso to kick off the trading session on Friday but then turned around to show a certain amount of support. In fact, we ended up closing with a hammer.
The hammer, of course, is a bullish sign, and if we can bounce from here, and I think we will, there are plenty of areas above that I would be interested in getting involved to the short side. After all, the interest rate differential favors Mexico, and that will continue to be the case, but that doesn't mean that the market needs to go in one direction forever.
Technical Resistance and Carry Trade Dynamics
If we can bounce from here, the 17.5 level might end up being an area that I would be interested in seeing signs of exhaustion that we can start selling into. The 50-day EMA is going to approach the 17.50 level fairly soon, and that should end up being a double whammy for buyers.
Now, if interest rates in America turn around and jump, then fine, maybe we go higher, but I don't like the idea of buying this pair because it does cost you money every day to hold it. So, I am only short of this pair at any given time. After all, if I want to buy the US dollar against other currencies, I can do it without paying the cost.
Keep in mind that this pair is a little bit different than many others, and the better the US does, quite frankly, the better the Mexican economy does, meaning the better the Mexican peso can do. All things being equal, a short-term jump is a selling opportunity that I could get involved with at the first signs of exhaustion.
Underneath, we have the 17 level that offers significant support, and if we were to break down below there, then we could go looking to the 16.50 level. That being said, though, in the short term, it looks like a bounce is more likely than not.