- The US dollar has rallied rather significantly during the trading session on Tuesday, as it looks like we are trying to reach the 50-Day EMA.
- Keep in mind that this pair is extraordinarily oversold, and we could be forming a bit of a “falling wedge.”
- The falling wedge of course is a trading pattern that a lot of people like to look for some type of reversal.
- Keep in mind that the 16.62 MXN level underneath has been massive support in the past, so I think it’s probably only a matter of time before value hunters would have returned.
Ultimately, the size of the candlestick is rather impressive and we have seen the US dollar price show signs of life as of late. There are probably a lot of questions out there as to what happens next, as we have seen the complete reversal during the Tuesday session, and of course there are going to be a lot of questions as to what we do next due to the fact that there are a lot of global concerns.
A Recession for the United States is a Recession for Mexico
Keep in mind that the Mexican economy is highly levered to the US economy, and therefore if the US starts to slip, so does Mexico. The Empire State Manufacturing Index showed how we were struggling during the last month to produce, therefore it makes quite a bit of sense that we would see people assuming that there are going to be major issues out there when it comes to cross-border transactions.
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If we are forming a bit of a double bottom, this could be a major low for the market, and therefore it could be a nice swing trade. That being said, you need to keep in mind that the interest-rate differential certainly favors the Mexican peso, so you are paying to go long of this pair. While there could be gains to be had in the US dollar against other currencies rather easily, the Mexican peso is going to be expensive to short at this point. Ultimately, I think we have a lot of volatility, but if we were to break down below the 16.62 level then the market could drop quite a bit. Expect a lot of volatility, but at this point if we get a daily close above the 50-Day EMA, we could see the US dollar gain and reach toward a 17.50 MXN level.
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