Potential Signal:
I am waiting to see if this pair can break above the 20 MXN level on a daily close. If it does, I’m willing to start buying at 20.10, with a stop loss at the 19.75 MXN level. At that juncture, I would be aiming for the 20.80 MXN level based on historical charts.
- My daily analysis of exotic currency pairs, the USD/MXN pair is definitely worth paying close attention to.
- This is because it is a play on Latin America and the emerging markets at the same time.
- Furthermore, it also mimics what’s going on in the US economy fairly well, as the pair has an inverse correlation to what’s going on from a growth standpoint.
This is mainly due to the fact that Mexico is the largest exporter in the world to the United States, despite the fact that most people believe it’s China. The reality is that most of the strength in the Mexican peso is due to the fact that money is flowing out of the United States and into Mexico for various goods, such as manufacturing of automobiles. Beyond that, there’s also the remittance of migrants into the United States, which has a certain amount of influence on cross-border flows of currency.
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Technical Analysis
The technical analysis for this pair is fairly strong, and I think it will probably only continue to be so. The first thing that I would point out is that we gapped lower on Monday, only to turn around and show signs of life again, breaking above that gap and sitting still. We are approaching the 20 MXN level, which in and of itself is a large, round, psychologically important barrier, but breaking above there could send in a flood of new buyers.
Underneath, we have the 50 Day EMA near the 19.20 MXN level, which of course is rising. After that, we have support at the 19 MXN level. If we were to break down below there, then we would see a lot of US dollar weakness, probably based on a lot of “risk on behavior.” Quite frankly, despite the fact that Mexico has a much higher interest rate than the United States, I don’t think too many people truly care in an environment where it looks like things will be slowing down.
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