- We’ve seen rather negative momentum in the USD/MXN pair over the last couple of months, especially once we broke down below the 20 MXN level.
- I think we are in a situation now that we are going to test a crucial level during the month of June in the form of the 19 MXN level.
- This is an area that could open up a lot of selling pressure, but as things stand right now, we may have to bounce in the short term in order to build up that necessary momentum.
Interest Rate Differential
The interest rate differential favors the Mexican peso, but we also need to keep an eye on the US economy itself. Late in the month of May we got a surprise announcement in the form of the Preliminary GDP numbers in America, coming out at -0.2%. While most traders would expect that to influence the US dollar, it actually has more of an influence on the Mexican peso, as Mexico sends so many of its exports into America. In other words, it’s a situation where your biggest customer is struggling, and therefore you are not making as many sales. If the US economy starts to struggle, the Mexican economy most certainly will as well.
All things being equal though, I think the US dollar might actually struggle a bit against the Mexican peso, but if we were to break above the 20 MXN level, that would obviously be a very strong sign. This is one of the few places that I might be looking to short the US dollar, because we are starting to see a little bit of a recovery in the greenback, but if the US economy really starts to take off, Mexico will be one of the biggest winners. If we break down below the 19 MXN level, then I think the trapdoor opens and we could drop as low as 16.5 MXN, although I don’t necessarily expect to see that during the month of June, that might be more along the lines of the year.
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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.