- The US dollar initially tried to rally a bit during the course of the trading session on Thursday, but then gave back to show signs of weakness.
- At this point in time, we are focusing on the 19 Mexican pesos level as it is a previous resistance barrier and it should now, at this point in time, should be a significant support level based on market memory.
- That being said, we have broken out above the 19 Mexican peso level, shot above the 20 Mexican peso level, and then pulled back to show signs of weakness.
Nonetheless, this is a situation that I think continues to look at the risk appetite around the world because quite frankly, the Mexican economy is not where people go running towards when they’re looking for safety.
I believe that most traders believe that the trend has changed for good
Even if we were to break down below the 18 pesos level, I think the fact that the market has since the low risen as much as 24% in favor of the greenback, that it’s difficult to imagine a scenario where the peso completely reverses this trend. I think at this point in time, most honest observers will recognize that the US dollar is in an uptrend against the Mexican peso. If the US economy slows down, it will continue its upward trajectory against the peso, mainly due to the fact that the Mexican economy is almost wholly dependent on the U.S. for exports. So, with all of that being said, and the fact that there’s been a rush into treasuries, I think you’ve got a situation where traders continue to buy the dip, and we are getting fairly close to an area that people will be interested in.
Ultimately, the interest rate differential does help the Mexican peso look a little bit more impressive than it should, but people are not willing to risk interest rate moves against the interest rate differential in an environment where the global economy seems to be slowing down.
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