The US dollar bounced a bit in the latter half of April, and May could see a touch of continuation in this pair.
USD/MXN
The US dollar strengthened late during the month of April to push back against the Mexican peso but it's worth noting that it had completely fallen apart earlier in the month. With that being said, I think you've got a situation where traders are looking at this through the prism of the interest rate differential.
What I also believe is that we are looking at a market that will continue to be very noisy and I do think it will continue to be one that moves on Middle Eastern headlines as those have such an outsized effect on the interest rates in America. The 10-year yield has been extraordinarily strong during most of the month, but it did drop at the beginning and that's part of what gave the peso such strength.
Interest Rate Differentials and Technical Support
The interest rate differential continues to favor the Mexican peso, but when that interest rate differential shrinks it obviously helps the US dollar. So, with that being said and the fact that we seemingly have formed a bit of a double bottom near the 17 level, I think you have to believe that this market could very well bounce this month.
There are enough concerns out there to perhaps send the US dollar higher, perhaps send the US dollar breaking above the 17.5 Mexican peso level, perhaps trying to get all the way back to the 18 level where I expect to see a lot of resistance. On the other hand, if we break down from here and bust below the 17 level, then we could see a bit of freefall.
Ultimately though I think consolidation will be the case here over the next several months as traders try to differentiate between headline noise and the actual carry trade that could be taken advantage of like we have seen most of this year. I'm looking to fade rallies that show signs of exhaustion but as things stand right now, this is a market that probably sees more upward pressure than down.