We continue to see the USD/MXN pair act as a large barometer for risk appetite, and the carry trade overall.
USD/MXN
We had initially rallied during the trading session on Monday in the US dollar against the Mexican peso, but you can also see that the market has turned around to show signs of extreme weakness. With that being the case, I think you've got a situation where traders are starting to perhaps look at the interest rate differential again, and I think we could drive toward the 17.15 level where we had bounced from during the Friday session.
Rallying from here could open up the possibility of a move toward the 17.5 Mexican peso level, but that's an area that I think will give us a lot of resistance, especially with the 50-day EMA racing toward it. With this, I like the idea of fading rallies as they show signs of exhaustion, but I also recognize that you could be in the midst of trying to form some type of basing pattern.
Potential Floor at the 17 Level
After all, 17 has been a level of pretty significant support for some time and I think traders will be looking at this as a potential floor. If we were to turn around and break above the 50-day EMA, then that shows a strengthening US dollar.
But with the interest rate differential here, I'd prefer to own the dollar against something like the euro or the pound if we start to see it take off. After all, I don't want to pay the swap that would be part of the punishment you get for buying this pair. If we were to break down below the 17 level, then it opens up the possibility of a move down to the 16.5 level.