- The US dollar has been sideways against the Mexican peso for several weeks, as it continues to hang around just below the 18.50 MXN level, an area that was previously support.
- Ultimately, this is a market that is going to move on the fortunes of the United States, because this is a little bit different from other currency pairs than many others.
- After all, the US dollar is typically considered to be a “safety currency”, and that, of course, is the scenario here.
However, keep in mind that Mexico is the largest exporter to the United States, and therefore, you are also going to see the US dollar all the better the United States does, as the way to think about this market is that the biggest customer of Mexico is in the United States, so if the United States is buying more Mexican goods, it lifts the Mexican economy. Furthermore, you have to keep in mind that the interest rate differential favors Mexico, so all things being equal, being short of this pair does pay.
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It’s a Grind
Keep in mind that this pair is typically one that grinds, although we do get the occasional plunge or bounce. There is a downtrend in effect, and the downtrend line we are pressing up against as we are closing the month of October. The market rallying from here will run into quite a bit of resistance near the 18.50 level, followed by the 18.75 level.
Anything above there then brings into the picture a potential move to the 19 MXN level, but ultimately, I believe this market will be slow and grinding during the month, as the next move will be based on the idea of the reserve and what it will do with interest rates. While it is expected to cut rates, the market already knows that, so I don’t know if this will be the determining factor per se, but if the Federal Reserve suggests that it is going to become ultra loose with monetary policy, that could send the pair down to the 18 MXN level.
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