- The US dollar has been positive against the Mexican peso for most of the month of November, and as I write this article, we are threatening to break above the 20.70 level quite handily.
- This brings the 21 MXN level into focus, and I think this is an area that we will see a lot of fight come into the picture.
- In fact, you can make a very bold statement in saying that as goes the 21 MXN level, so goes the future of this pair for the next several months.
I think at this point in time the month of December will probably be very noisy, but I also suspect that it will probably be somewhat sideways. If I had to pick which direction we were to break out in, it almost certainly would be the upside, for multiple reasons. Quite frankly, I just don’t see people wanting to throw a ton of money into Mexico right now, because the Mexicans have a major problem, and his name is Donald Trump.
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This is a pair that is quite unique in the Forex world, as it is driven by a host of esoteric factors. The first one is the fact that there is a huge amount of remittances the come back from the United States from Mexican migrants that are trying to support their families. I suppose there are other currency pairs around the world that are like this, but quite frankly none of them are this big. They are normally smaller emerging market economies. Because of this, if immigration laws suddenly get tighter and border closes, it has a major influence on how much money that gets sent back across the border. Furthermore, the Trump administration has a goal of deporting at least 1 million illegal migrants per year.
Perhaps more important is the fact that Trump has threatened Mexico with the 25% tariff if they don’t start policing their border. The one thing about a tariff coming from Trump is that he’s deadly serious about it, and this would do nothing short of wrecking the Mexican economy. Mexico sends almost all of its exports into the United States, so if that were to be the case it’s likely that Mexico would find itself in serious trouble. This is another bone of contention with the Trump administration, as Mexico has found itself to be a front for Chinese goods being assembled and then shipped across the border. Just to prove a point, Trump is going to slap a 10% tariff on Chinese goods.
If we see this pair break above the 21.33 MXN level during the month of December, it would not surprise me at all to see a move to the 24 MXN level over the longer term. However, as Trump doesn’t take office until January 20, I suspect that this will be more or less consolidation with an upward tilt, as traders try to get a read on exactly what’s going to happen. It is worth noting that the Mexicans have already started to talk about closing the border, so they may avoid what would essentially be a financial nuclear bomb.
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