- The US dollar initially fell during trading on Tuesday only to turn around and show signs of life again against the Mexican peso.
- However, it’s obvious that we are in a strong downtrend, and it does make a certain amount of sense considering that the market has seen so much of a selloff over the last several months.
- Yes, we recently had a spike higher, but we have turned around and almost completely wiped the entire thing out.
The US dollar has a stronger than usual interest rate backing it, but at the end of the day, it is still not anywhere near strong as the Mexican peso. You still get paid to hold the peso at the moment, and I think that’s something that a lot of institutional traders will be paying close attention to. With this, the downtrend is still going to be very much intact unless of course we get some type of major “risk off” type of move in the currency markets overall.
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Technical Analysis
The 50-Day EMA is near the 16.85 level and is starting to drop. This is an area where traders will continue to struggle to break above there, so therefore I think you’ve got a situation where you have to be very cautious, but you do have to recognize that any move in that area probably invites selling pressure. On the other hand, if we were to break down below the 16.50 pesos level, then the 16.33 pesos level almost certainly come into play. If we break down below there, then the 16 peso level is the next target, and that is an area that if you look at the monthly charts, is massive support.
All things being equal, this is a market that I think continues to be very noisy, and you will have to be cognizant of the fact that it is much easier to short this pair that it is to buy it, due to the interest rate differential. In fact, if you start to see the US dollar really take off to the upside against the Mexican peso, I would postulate that you might actually do better buying the US dollar against other currencies that don’t yield as much.
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