- The US dollar has shot straight up in the air again against the Mexican peso on Tuesday, as the world waits for the FOMC meeting.
- The FOMC meeting of course is going to be a major driver of where the US dollar goes next, as traders will try to sort out where the Federal Reserve may go looking to find the right balance of hawkishness and type money policy, and of course trying to keep growth going forward.
As inflation has been very difficult to tame, it does perhaps make the idea of a tighter Federal Reserve a real possibility. I think that is what’s driving this pair at the moment, and it’s probably worth noting that the market is likely to continue to see trouble in the currency markets, because quite frankly the Mexican economy is almost solely depended on exports to the United States and remittances from Mexican citizens in the USA. In other words, if we continue to see inflation in America and perhaps even the economy start to roll over, it has a devastating effect on what happens to the Mexican economy.
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Expect Volatility
Ultimately, I think you can expect a lot of volatility in this pair on Wednesday as there is a lot of concern out there about whether or not the economy is going to continue to strengthen, or perhaps if inflation is going to overwhelm everything. It’s also worth noting that recently we have seen the market test a major area of support near the 16.25 pesos level in the USD/MXN currency pair, which goes back several years on the monthly chart as being a major support level. It has held, and now we have to wonder whether or not we are about to see an uptrend commence, and if that’s going to be the case, this could be a longer term trade waiting to happen. However, please keep in mind that you end up paying for swap at the end of the day, so this isn’t necessarily the easiest long position to take.
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