The US dollar has rallied quite significantly against the Mexican peso during trading on Wednesday, as we continue to see a rush into safety currencies. The Mexican peso is a significant emerging market currency, so you can look at this as a bit of a play on global risk appetite. The higher this market rises, the more likely we are to see a significant break down and risk assets.
Breaking above the 20 MXN level is rather significant, and we have tried to do it on both Monday and Tuesday. At this point, it looks as if we are going to finish the day above there finally, and this shows a real tenacity by bullish traders, and strength for the US dollar. That being said, the market is a bit overextended, so if we get a bit of a breakout above the both Monday and Tuesday highs, that would be the beginning of a significant “blow off top.”
If we do get that move, it is very likely that we will then go looking towards the 20.50 MXN level, which should be rather resistive based upon previous action. The US dollar has been attracting a lot of attention due to the US Treasury markets being on fire, but at the same time we have the possibility that we have gotten a bit ahead of ourselves. It is because of this that we need to pay attention to the USD/MXN pair over the next couple of days.
If we were to break above the highs over the last couple of days, then I would be a buyer. John that, I would also anticipate other exotic currency pairs to favor the greenback, such as the USD/ZAR pair would be. We would also see the US dollar gain against quite a bit of foreign currencies as well.
Ultimately, if we were to break down and slice through the bottom of the Monday candle stick, then it opens up the door for a move down to the 19.50 MXN level although it would be a bit choppy. There’s a lot of noise between here and there, so I would not anticipate that being a very easy move to make. The way the candlestick is closing for the Wednesday session, it’s obvious that the buyers have much more wherewithal and certainly much more strength at this point in time.
