The US dollar has been pretty noisy against the Mexican peso during the month of June and even managed to break above the crucial 17.50 level at one point. That was a very bullish sign, but we have given that back pretty quickly, and I think what this suggests is that the market is still in somewhat of a holding pattern. Keep in mind that the Central Bank of Mexico has made it clear that they are sitting on the sidelines and perhaps even starting to get a little bit more dovish. If that ends up being the case, it does work against the carry trade.
At the same time, the markets are starting to think that maybe the Americans are going to raise rates twice. I don't know if that's going to happen, but clearly that changes the overall attitude of the market. Furthermore, GDP in Mexico has been falling, which leads people to believe that maybe the central bank may have to do something. Ultimately, this is a market that I think is just bumping along the bottom after having a rather significant move lower over the last several months.
You still get paid to get short of this USD/MXN pair, and I think that's probably the theme for most of the month. What I'm looking to do is short this pair on small bounces higher, like we had just seen above the 17.50 level. It is not until we get above the 18 level that I'd be overly concerned about the trend.
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I do not think that this pair drops below 17 without some type of major catalyst, but if it were to do so, 16.50 could be a target. This is a pair that basically will be trading somewhat short-term in the month, I believe, but in a pair like this one, short-term means a couple of days, not necessarily a couple of minutes.
Expect a lot of choppiness, but I still prefer to buy the peso over the dollar, which is somewhat of an outlier for me. I generally prefer the dollar over most other currencies.
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