The US dollar has been very noisy in the past 24 hours, as the headlines in the Middle East continue to be the main driver.
USDMXN
The US dollar has been very noisy against the Mexican peso during trading on Tuesday as we find ourselves testing the crucial 50-day EMA. The market has been breaking below an up trending channel that has been in effect since the beginning of March and now it looks like we are trying to go bearish again.
This of course would be more in line with risk appetite returning and that of course is something that would favor the Mexican peso as the interest rate differential is so much stronger in Mexico.
Geopolitical Risks and Energy Infrastructure
Keep in mind that the market is more of a situation where you are fading rallies and looking for signs of exhaustion to take advantage of, so you can not only get the appreciation of the Mexican peso but also the interest rate payment at the end of the trading session.
We could find ourselves working our way back down to 17.5 pesos, but keep in mind the war in Iran continues to be a major factor of pretty much anything and everything right now. In this environment, headlines come very quickly that can change everything in the blink of an eye.
I am pretty cautious waiting to find out what exactly will happen at the end of the day as the United States has put into effect a significant deadline for the Iranians to open up the Strait of Hormuz. If they do not, then it is very likely that we will see attacks on energy infrastructure and that will leave certain countries out in the cold, specifically in this case Mexico. It will be interesting to see how this plays out, but caution is the better part of valor. It does look like we are trying to sell off a bit if we get any good news out of the Middle East.