The US dollar has pulled back early during the trading session on Friday as we continue to see a lot of noisy trade.
USD/MXN
The US dollar has pulled back early during the trading session on Friday, but then turned around to show signs of strength again as the 50-day EMA has offered a little bit of a floor. The question at this point in time is whether or not the US dollar can continue to consolidate and go higher, and if it does, what does that mean for a target?
I think ultimately, we have a situation where traders are watching the 50-day EMA for a short-term floor, but if we were to break down below there, then I think it opens up the possibility of a move down to the 17.20 level.
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The interest rate differential is, of course, a major driver of where we are going most of the time, but we also have to keep in mind that traders are going to be looking at this as a concerning market as we are breaking out of a potential bottoming pattern. It is worth noting that the numbers in Mexico, as far as the economic output is concerned, are starting to slow down, so it will be interesting to see how this plays out.
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I think ultimately, we are in a holding pattern, but if we can break above the 17.75 level, it is possible the US dollar could start to recover against the peso. This would be like swimming upstream, though, because the interest rate differential is still pretty large.
I prefer to short this pair, but I recognize there are times where it can absolutely rip to the upside, and we may be on the verge of that. We will just have to wait and see. This is probably more about Mexico at the moment than it is the United States, for once, so a little bit of caution probably goes a long way. Again, I still favor shorts, but we may have to short from a higher level.
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