- The US dollar has fallen pretty significantly during the early hours on Wednesday against the Mexican peso.
- This was mainly driven by more of a risk on type of move around the global markets.
- This was spurred by members of the Bank of Japan suggesting that perhaps interest rate hikes are not on the table going forward as long as markets remain volatile.
That gives traders the idea that the central banks are still going to ride to the rescue. So, the question at this point in time remains as to whether or not we are going to continue to see more of a risk on attitude or if this is just a simple relief rally, we have the 19 level that is an area that’s been important multiple times and therefore I think any pullback will more likely than not see a lot of buyers jumping in.
Will 19 MXN Continue to be Important?
Whether or not that actually holds true remains to be seen, but clearly in an environment where it looks like global trade and global economics are going to be souring, it’s hard to come to a conclusion that emerging markets will fare well. After all, this is a scenario where the Mexican peso is highly influenced by the U.S. economy, and that of course is something that you will always have to take into account when watching this USD/MXN pair. The interest rate differential does favor Mexico, but then again, so does a lot of risk. If you are willing to take risk, then fine, you buy the peso, but in times of uncertainty, money goes flowing into the U.S. treasury markets, and that of course drives up the greenback.
I don’t see anything changing on this chart, and it’s likely that there will be buyers looking for value. Because of this, it’s likely that traders will continue to look to the US dollar for safety, and I think at this point in time it is probably more likely than not that we will see eventual buying of the dip, as it’s far too risky for emerging markets to be heavily bought into in this environment
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