The Euro rose against the Mexican Peso on Thursday, as risk appetite is getting crushed.
EUR/MXN
The Euro has rallied a bit against the Mexican Peso, which makes a certain amount of sense considering that there are a lot of concerns out there when it comes to the global economy. This means that people are running to the Euro for safety. That being said, if oil continues to spike the way it is, the Mexican Peso may get a little bit of a reprieve. Furthermore, you have to keep in mind that the interest rate differential most certainly favors the Mexican Peso, so when I look at this, I don't see a trend change. When I look at it and start to think about what to do next, this looks like a market that I'm willing to short.
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The 50-day EMA sits at 20.03, and if we get anywhere near there with signs of exhaustion, it would not surprise me at all to see the Euro roll over again. The 20.10 level is significant resistance as well, but we have significant support at 19.80.
Interest Rate Differential and Oil Tailwinds Favor Peso
I think ultimately breaking down below there could unleash even further selling. The interest rate differential remains huge, and there's really nothing to suggest that it's going to change anytime soon.
Furthermore, if we get a situation where Europe has to start to import all of its energy, which we could be looking at, it could be very detrimental to the Euro, and the Peso could get a little bit of a bid for all of that medium-grade oil that comes out of Mexico. We'll just have to wait and see how that plays out. It could also get a little bit of a bid due to the fact that it is in the Western Hemisphere, it is far away from the problems, and gets quite a bit of its income from exporting to the United States, a place that money will be running to.
So, all things being equal, I think this is a fade-the-rally type of situation just waiting to happen. Signs of exhaustion- I have no issue whatsoever in selling this pair, and I do think that we end up going quite a bit lower over the longer term.
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