The US dollar has gone back and forth during the trading session on Monday against the Mexican peso as we continue to see the 17.50 level offering a bit of a ceiling.
The candlestick looks very much like a neutral candlestick, and it looks very much like a market that is trying to figure out whether or not the ceiling can hold as the interest rate differential continues to favor the Mexican peso.
The market breaking above the 17.50 level on a daily close could change some things and could send the US dollar reaching to the 200-day EMA, but quite frankly, I think we've got a situation where we are more likely than not continuing to see the US dollar weaken against the Mexican peso overall as the interest rate differential pays you so much more to be short of this market.
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Sideways Action and Headline Risk
That being said, the 10-year yield has been somewhat stubborn, and I also recognize that the area right around 17.15 has been a hard floor in the market. With this, I think you've got a lot of sideways action, and I think that shows that the market just doesn't really know what to do.
That does make a certain amount of sense considering that the interest rate markets continue to show stubborn strength, but at the same time, people are a little bit hesitant to take on too much risk as headline risk coming out of the Middle East has thrown the bond markets into disarray.
Longer term, one would think that owning the Mexican peso makes more sense, but if there's any type of panic whatsoever, this pair will turn around quite rapidly. I'm looking forward to see a little bit of negativity here so that I can short this pair for a day or two, but I'm not looking for a major move. If we break out to the upside, I might revisit this near the 200-day EMA.
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