The US dollar plunged against the Mexican peso on Wednesday, as the ceasefire was announced. With this, the rates in the USA dropped precipitously.
USD/MXN
The US dollar plunged against the Mexican peso during the trading session on Wednesday, breaking through the 50-day EMA as the ceasefire announcement was made. This of course had rates in the United States collapsing and that sent the US dollar lower against almost everything.
That makes quite a bit of sense, especially when you look at it through the prism of the interest rate differential between the United States and Mexico, that the Mexican peso would appreciate. With that being the case, I do like this pair to the downside as long as we can keep further escalation of the war at bay.
Interest Rate Differential
That of course is an open question, mainly due to the fact that I am hearing stories about explosions in Iranian cities, some rockets being sent into Kuwait, etc. Furthermore, the statement made by BB Netanyahu suggests that the war isn't over.
All things being equal, I do prefer the downside because you get paid to be short of this market, but it's really going to come down whether or not we are going to see interest rates stay low. If the war in the Middle East were to kick back off, I’m assuming the US dollar would skyrocket again against the Mexican peso as a safe haven move would be expected.
To the downside, if we do start to fall from here, the 17.15 level is an area that has been supported that I think extends down to the 17 level. With all of that being said, I think we are about to see a pretty wild swing. The question of course is going to be whether or not that happens right away or if it is something that takes a certain amount of time. We are on a knife's edge right now, but the interest rate differential certainly favors those who would short.