- The US dollar initially did rally during the course of the trading session here on Friday but then fell pretty hard against the Mexican peso as the US dollar strengthened against almost everything else.
- A little bit counterintuitive, but the reality is that the better the economy is doing in the United States, the better that the Mexican peso will do.
- This is because Mexico sends almost everything it produces into the United States as far as exports.
So therefore, think of it as a situation where the customer is doing better than thought. So, the shopkeeper, in this case, Mexican manufacturing, should have more sales. Therefore, more money will flow into Mexico for those goods and services. While I know most if you learned that the FX markets are about cross-border flow, many of you will forget about that once you start trading. This is a currency pair that is especially sensitive to it.
Has This Pair Changed?
Now, that being said, the remittances aren’t as big of a factor as they once were as there has been a huge wave of deportations, both self-imposed and government imposed. that sending of money back to family and friends in Mexico will have abated a significant amount. That being said, we have an interest rate differential that favors Mexico. And I think a lot of people are taking advantage of that, I know that I’ve been taking advantage of other currency pairs that pay a positive swap, for example, a dollar yen.
So, with that being the case, I think that’s kind of what’s going on here. The 19 Mexican peso level is an area that I think a lot of traders look at as a target. If we can break down below there, the next major area is near 18.61. Rallies at this point in time should more likely than not show signs of exhaustion that traders will be sellers of.
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Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.