The US dollar fell against multiple currencies on Wednesday, as the interest rates in America fell as well.
USD/MXN
The US dollar has fallen pretty significantly during the trading session on Wednesday across the board. The markets will continue to be very noisy in general, but when you look at the US dollar against the Mexican peso specifically, there is an interest rate differential that favors the Mexican peso that is quite strong.
With the falling interest rates in America, it of course widened that interest rate differential and got people excited. However, it looks like the 17.20 level remains very difficult to break down below and in this environment, I think the idea of a bounce is not too far-fetched.
Interest Rate Differentials and Geopolitical Sentiment
After all, a lot of what we had seen was based on the idea that the Americans and the Iranians might be a little closer to peace than people thought. If that’s going to be the case, then I think you have a situation where what happens next will probably be a situation where we get a bit of a bounce, then we’ll test the 17.50 level against the peso where the 50-day EMA currently resides.
After all, we’ve heard stories of Americans and Iranians getting closer to peace more than once and as I look across the forex world right now, it looks like the softening of the US dollar is starting to already be turned around a bit. This is more or less a wait and see type of situation especially as we are at critical lows against the Mexican peso.
That being said, if we were to break down below the 17 level, it opens up a move down to 16.25 which is the highest that the Mexican peso has been for multiple years. I prefer to fade rallies on signs of exhaustion simply because it gives me more wiggle room.