- The US dollar has rallied a bit during the trading month of January, as we are trying to form some type of double bottom.
- The 16.62 level has been a significant amount of support multiple times, and therefore I think it’s worth paying close attention to for the month of February.
- If we were to break down below the 16.60 level, then I think the US dollar might be in a bit of trouble, and the Mexican peso would serve as a proxy for multiple emerging-market currencies.
The 50-Week EMA is starting to rise toward the current pricing level and sits just above the 17.50 MXN level. This is an area that I think will be important, and if we can overcome this indicator, then it’s likely that the US dollar has bottomed against the Mexican peso. While there is a major interest rate differential between the 2 currencies, the reality is that if we are going to fall into some type of recession in America, that will have a devastating effect on Mexico, as Mexico is the number one exporter to the United States. (Yes, it’s not China anymore.)
Double Bottom?
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If this double bottom holds, this could be the beginning of something rather large. I think the next target would be the 18.30 level, where the 200-Week EMA might come into the picture. Either way, the interest rate differential does favor the Mexican peso, but if there is more concern out there than anything else, then the US dollar will be by far the superior choice. That being said, one of the biggest problems you have with this pair is that if you choose to buy it, you are paying a wide interest rate differential, although it’s not as bad as it has historically been due to higher rates in America.
Speaking of America, the FOMC will be closely regarded as to what their interest rate cutting policy is going to be. Furthermore, we need to pay close attention to why they are cutting rates, because if they are doing it to get in front of inflation falling that would be one thing, but if it has something to do with the economy falling apart, that actually will have people buying the US dollar as they pump money into the treasury markets.
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