Potential signal:
- I am selling below 17.50, with a stop at 17.65 and a target of 17.28.
- The US dollar tried to rally against the Peso, but it has since sold off again. Is this a liquidity grab?
USD/MXN
The US dollar initially rallied against the Mexican peso during trading on Thursday but has seen a bit of resistance to turn things around. At this point, we have to ask whether or not this is a so-called liquidity grab above the 17.50 level because, technically speaking, it could be. It depends on how you trade the currency markets, but it is worth noting that there are expected interest rate hikes coming out of the Federal Reserve later this year, and if that’s going to be the case, it makes a lot of sense that the US dollar could continue to fight.
Interest Rate Expectations and the Carry Trade
Furthermore, the Mexican Central Bank has already stated that they are basically flat when it comes to expectations of raising interest rates, so that carry trade is starting to tighten up a little bit. That being said, you still get paid to be short of this pair, so I think the upside is probably somewhat limited.
Furthermore, I don’t have a situation where I’m willing to get involved and start buying this USD/MXN pair because if I wish to buy the US dollar, there are a lot of other currencies that I could do it against that would actually pay me to do it. Yes, this is a pair that can move rather quickly, but it just lends itself to being short over the longer term; after all, I do not wish to pay the swap daily.
As the US dollar looks like it is strengthening, this is a pair that I’m not really too keen to short for a longer-term move. Recently, the selling that I’ve done here has been the short-term variety, and that’s fine; you just have to realize the market you’re playing in.
Right now, this is a market that if we break down below the 17.50 level, then I’m okay with shorting it, but I’d be looking to take profit near 17.25. As far as buying is concerned, again, I’m not really keen to do so myself, and I do see a lot of noise between here and the 200-day EMA.
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Christopher Lewis is a technical analyst and market commentator at DailyForex with more than two decades of trading experience in Forex and other leveraged markets. Based in Columbus, Ohio, he specializes in chart-based analysis of major currency pairs, stock indices, commodities, and energy markets, focusing on clear support and resistance levels, trend structure, and risk management. Christopher produces daily written and video analysis for traders who rely on technical setups to navigate volatile market conditions
As seen on: Pairs Of Aces Podcast,The Trader Guy, FXEmpire
