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USD/MXN Forecast: USD Continues Choppy Behavior Against Peso – 18 May 2022

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You need to be very patient with any trade that you take in this market, as it will not necessarily move as quickly as many of the other emerging market currency pairs out there.

The US dollar fell a bit on Tuesday to break down below the 20 pesos level. That being said, there are multiple Federal Reserve members speaking during the day on Tuesday, so a lot of noise would have been anticipated. When you look at the chart, you can see that the 19.75 pesos level has been significant support previously, so it does make sense that we would see it offer support again. In fact, we formed a bit of a “double bottom” and have bounced from there.

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On the upside, the 20.25 level should offer a bit of resistance as the 50-day EMA sits there, and it is also an area where we have seen both support and resistance multiple times. However, we have sliced through there a couple of different times, so if we break above there it would not be the be-all and end-all of the trend. If we break above there, the 20.50 pesos level and the 200-day EMA comes into the picture just below there. Ultimately, I do think that we will continue to bang around in this market, but it is also probably going to be highly influenced by the crude oil market, which of course has shown quite a bit of strength as of late.

If we were to break down below the 19.75 level, then it would more likely than not have to do with yields in America dropping, or oil taking off to the upside, take your pick. This is not to say that it would be easy to happen, just that it could. If we break above the 20.50 pesos level, that would be an extraordinarily bullish sign for the greenback, and you would probably see the dollar strengthening against most other currencies. At this point, it appears that the higher interest rates in Mexico continue to attract inflows, right along with the oil market driving up demand for the currency. Keep your position size reasonable, but also recognize that this pair does tend to move very slowly, so you need to be very patient with any trade that you take in this market, as it will not necessarily move as quickly as many of the other emerging market currency pairs out there.

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