Ultimately, I think a lot of this will just go with risk appetite overall, and therefore you need to pay close attention to the idea of where traders are moving.
- The US dollar has rallied significantly during the trading session on Tuesday to break above the 200-Day EMA against the Mexican peso.
- Because of this, it looks like we are threatening the 18 pesos level, and clearing that will almost certainly bring in more “FOMO trading”, as traders start to worry about the global economy.
- Yes, Mexico offers roughly 5% more in the way of swap and interest rates than the United States does, but at the end of the day, the Mexican economy relies heavily on the US economy, and if we are going to continue to see a bit of a breakdown in risk appetite and the way that the US economy is moving, right along with the rest of the globe, then the US dollar will be sought as a safety currency.
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Underneath, I see the 17.50 Mexican peso region as an area of support, and then underneath there, the market has the 50-day EMA. All things being equal, this is a market that will eventually find a reason to find buyers in that region, but if we were to break down below the 50-day EMA, then it’s possible that the market could go to the 16.75 MXN region.
Ultimately, I think a lot of this will just go with risk appetite overall, and therefore you need to pay close attention to the idea of where traders are moving. If they are running away from any type of risk, that will continue to send this pair higher. On the other hand, if we turn around and show signs of risk appetite returning, that could send people looking for higher-yielding assets such as the Peso.
Ultimately, this is about the US dollar more than anything else, so you need to pay close attention to what it’s doing, and not so much worry about the Mexican economy itself. This all comes down to whether or not the US dollar is strong. Right now, it looks like it is and therefore this breakout could stick. If it does, we could go as high as 19 pesos, possibly even 20 over the longer term. Obviously, that takes quite some time to get there, but I do think it’s the most likely of patterns to play out as we have just got done forming a huge “rounded to bottom.”
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