Potential signal:
- I am a buyer of this pair at the moment.
- I have a stop loss just under the 19 MXN level, with a target of the 20 MXN level.
The US dollar has rallied again against the Mexican peso, breaking the top of the inverted hammer from the previous session on Tuesday, and therefore it does look like we are starting to see a certain amount of strength come back into the market. I do think that the US dollar was oversold during the last week or so against the Mexican peso, especially as we are going to be concerned about the global economy and more specifically, the U.S. economy. The US economy continues to see inflation, but it also continues to see employment slow down.
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If there is a rate cut
If the Federal Reserve does in fact cut interest rates, while that makes the U.S. dollar a little less interesting from a currency swap perspective, the reality is Mexico owes most of its economy via exports to the United States. And therefore, if the United States starts to slow down. That slows down the demand for Mexican goods and services. With that, we also will see a bit of an issue with remittance as Mexican nationals tend to move to the United States for a few years at a time, work, send money back across the border, back to family and friends to help support them. And that most certainly has an influence on the currency markets tied together, it makes it interesting that despite the fact that there is a massive interest rate difference in favor of the Mexican peso, we still continue to see the greenback fight. I think the 20 area was a little bit much for traders to stomach, but a pullback to about 19.12 or so makes perfectly good sense. And it looks like we are going to continue to grind and try to rally on each dip.
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