- As I write this analysis, the US dollar is barely hanging on against the Mexican peso, and it is probably worth noting that the US dollar is struggling against multiple other currencies.
- The Mexican peso is a bit of a different animal though, because the 2 economies are so heavily intertwined that the reaction in the pair could be quite a bit different than most people anticipate occasionally.
Technical Analysis
Looking at the technical analysis, it’s worth noting that we are breaking toward the 18.80 MXN level, which is an area that’s been supported for a couple of weeks. Breaking below that level opens up the possibility of a move down to the 18.5 MXN level, possibly even lower than that. However, we have recently seen a certain amount of negativity coming out of the US economy, which while you would think that would be very negative for the US dollar, the reality is that it has horrific effect on the Mexican economy as the Mexicans send roughly 85% of their exports into America.
In other words, the Mexicans have to worry about their biggest customer, and if they do in fact see the Americans slowing down into a recession, they will be buying as many Mexican goods.
If we get to that situation, then a break above the 19.50 MXN level could be possible, and it could even open up a move to the 20 MXN level. However, I suspect that this would be more of a “shock to the system” type of more than anything else. If things stay somewhat stable over the next several weeks, then it’s likely that we will see the US dollar continue to suffer a little bit of negativity against the Mexican peso as the interest rate differential most certainly favors the Mexican peso over the US dollar. The last couple of months have been negative, and unless something shocks the system, it’s very likely that we could see a little bit of continuation in this trend.
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Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.
