- The US dollar initially did rally a bit during the trading session on Friday, but then plunged to break well below the 20 pesos level.
- This makes a certain amount of sense because the trade war concerns between the United States and Mexico have cooled considerably, as the Mexicans seem to be making Trump very happy.
- As long as that’s the case, there’s a really good chance that the Mexican peso gets a bit of a relief rally.
The U.S. economy, if it does in fact pick up, that will also help the Mexican economy. As I zoom out, you can see multiple times in the past the area between 20 Mexican pesos and 21 Mexican pesos has been a major area of contention. It’s also been significant resistance multiple times, so it’s very possible we may have just peaked. I’m watching this USD/MXN pair very closely, and it is worth saying that it looks like we are going to try to close towards the bottom of the candlestick. Underneath the 19.75 level, I think I’m going to attempt to short this pair and aim for the 19 level.
The 20 MXN Level
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Above the 20 level, I would have to get out, as that would certainly show quite a bit of volatility. Understand that the interest rate differential between the two economies does favor Mexico, but you also have to have more of a risk on type of move to make that happen.
Short-term rallies are possible, but I think it’s going to be very difficult for the dollar to get above the 21 level, at least unless something drastically changes in the trade war rhetoric. Right now, it seems like Trump’s focused more on Canada and Mexico. As he said, Mexico gets it. So, we’ll have to wait and see. But right now, it certainly looks like we are at a major inflection point.
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