- The US dollar has stabilized a bit during the trading session on Friday against the Mexican peso near the 18.83 level.
- This is an area that previously had been resistant, so it does make a certain amount of sense that we would see support here.
- For me, the next major area to pay close attention to is going to be the 19 level because if we turn around and break above there, I'm convinced that the uptrend continues.
Let's be honest here, the Mexican peso has been absolutely crushed and it's difficult to imagine a scenario with all of this uncertainty that people are going to be jumping into the Mexican peso of all currencies.
Going Against Interest Rate Differential
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The interest rate differential of course favors Mexico, but really at this point in time, the biggest thing you need to pay attention to is that when people are concerned, they will jump into the U S treasury market. That of course, means that you need to us dollars beyond that. You also have to keep in mind that Mexico sends a huge majority of its exports into the United States. So if the U S economy is in fact going to slow down, that's going to be really toxic for the Mexican economy.
If we do break down from here, I'd be watching the 50 day EMA, which is closer to the 18.30 level. But based on the Friday candlestick, I suggest that perhaps the worst of the selling, which I actually think was profit taking, is now over. If we continue to get any fear whatsoever into the marketplace, this is a pair that I think will continue to go higher, perhaps aiming for 20 pesos and then beyond. Because of this, you need to be very cautious with going all in right away, but I do think that this is a cyclical trade that will continue to benefit the green back unless something changes quite drastically in the global financial situation.
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