- The US dollar has been bullish against the Mexican peso during the bulk of the month of April.
- That being said, I don’t necessarily think this means anything other than we have found an area where people are willing to take profit.
When you look at the longer-term charts, the 16 pesos level is an area that is a major support level. Because of this, it should not be a huge surprise that we have seen the market bounce the way it has. Furthermore, we have a lot of questions to ask around the world right now as far as risk appetite is concerned.
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We tested the 50-We EMA a couple of times during the month of April, but ultimately, we continue to see a lot of overhang as far as pressure is concerned. Because of this, I would assume that the downward pressure continues, mainly due to the fact that there is a massive interest rate differential, as Mexico has a massive amount of interest attached to its currency, in the form of 11.75%. While the US dollar does enjoy historically high interest rates as far as the last 15 years is concerned, the reality is that the Mexican peso is an entirely different world as far as interest is concerned.
Traders will continue to get paid to be short of this market, but I also believe at this point in time you also need to pay close attention to risk appetite. After all, the Mexican economy is not one that people want to throw a ton of money into in times of huge concerns. With that being said, if we were to break above the 18.50 MXN level, then I think this is a market that could truly take off to the upside. On the other hand, if we break down below the 16 MXN pesos level, then we could really start to see the US dollar unwind. In general, the market is likely to see the US dollar shrink against almost everything else, not just the Mexican peso. On the other hand, if we see a major “risk off move” in the market, emerging market currencies like the Mexican peso will get decimated. At the end of the day, I would not be surprised at all to see this market bounce around between 16 pesos and 18 pesos for the month.
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