The US dollar has been struggling a bit against most currencies globally, and as a result, its not a huge surprise that the MXN continues to attract inflows.
USDMXN
The US dollar has been on its backfoot against most currencies during the trading session here on Monday, so it is no surprise that it is also on its backfoot against the Mexican peso. After all, this has been a very reliable carry trade partner for some time, and I still think the peso has further to go. In fact, I suspect 16.5 might be the eventual target.
It is going to take a significant amount of momentum, and it is probably worth noting that this pair does not move huge amounts during any particular day, but what it does do is pay you to be short as the interest rate in Mexico is 7% and in the United States is 3.75%. So there is that swap differential and this is a very comfortable trade to be in because it does not exactly go haywire very often.
Market Momentum and Trade Stability
That being said, do keep in mind that there is a little bit of a spread here that you have to contend with, so make sure you check your position size and make sure it is appropriate. The 50-day EMA is just now under the 18 level and I think that is probably your ceiling, although quite frankly 17.5 is probably going to contain any bullish move as well unless there is something remotely Mexican-related that is more of a risk-off type of trade.
That is the one thing that could come in and throw a monkey wrench into everything, but you will notice through all of these tariff talks with Canada and the EU and everything else, the Mexican peso has been strengthening. The question is why? The answer is simple. The Mexicans and the Americans came to an agreement a long time ago and quite frankly I think Trump is very happy with the Mexicans.
They have been very helpful as the two countries seem to be working together quite nicely. The United States of course is Mexico’s biggest customer and Mexico is the United States' biggest supplier as it is the number one exporter to the US and therefore this trade makes perfect sense.
Potential signal: I am selling here. I am putting a stop loss at 17.53, targeting 17.
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