- The US dollar continues to punish the Mexican peso.
- The US dollar has rallied a bit during the trading session on Thursday against the Mexican peso despite the fact that we have seen the Americans not come to work.
- It is a National Day of Mourning for former president Jimmy Carter and his death. So Wall Street wasn't even there.
So, with that being said, it's very interesting that the US dollar continues to climb against the peso. It tells you just how much the market is leaning to the upside. The 21 pesos level above is a significant barrier, and if we were to clear it, that would really kick things off to the upside. Between now and the Donald Trump inauguration, I think you have the likelihood of a more sideways market, but that's only a couple of weeks from now.
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So, after that, we'll have to see how he deals with Mexico. One thing is for sure, the rhetoric between the Americans and the Mexicans really isn't getting much better. And this is a situation where the Americans will win this argument. The Mexicans will have to do something about the border, probably fentanyl crossings, and then perhaps deal with some issues that Trump has with the possibility of tariffs correcting them. With that being said, the question then becomes, what actually happens? And I think that's where the market is. The 20 Mexican pesos level underneath is support. The 21 Mexican pesos level above is resistance. And we are on the precipice of the Mexican peso falling apart. However, if the Mexicans and the Americans come together with some type of agreement, it's likely that we turn around and go back below the 20 Mexican peso level though.
Donald Trump and the Mexicans
It is worth noting that it would be on brand for Donald Trump to let the peso collapse before trying to approach some type of deal because he'll have more leverage at that point. If the US dollar breaks above the 21 Mexican peso level, it will cause chaos in the Mexican economy, thereby making him get what he wants much easier. That's the game at play right now. And it is worth noting that if the Trump administration shuts down the border and actually closes it, the flow of migrants across the border will not necessarily stop, but it will slow down drastically. And that will have a major influence on remittances back to Mexico. That's a huge part of what happens in this currency pair as well. So, keep that in mind.
Ultimately, the border was what got him elected. So that is going to change. The question is, what does the trade agreement look like? Right now, the world is just simply holding its breath. Another thing to keep in mind is that the Friday session is the non-farm payroll announcement in the United States and that will have a major influence as well, because if that's hotter than anticipated, it could put more upward pressure on the greenback. At the end of the day though, I still think we're kind of squeezing a little range trying to wait to see what Trump actually does.
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