Forex Critical: The Mexican Peso Slams Into A Presidential Debate

It seems the U.S. dollar index (USD) has stopped going down. Since careening to its lows in January, the U.S. dollar has bounced up and down through a well-defined range.


It is starting to look like the U.S. dollar index (USD) has stopped going down.
It is starting to look like the U.S. dollar index (USD) has stopped going down.

Source: Stockcharts.com

The U.S. dollar gained each of the last 4 trading days as part of its latest run-up toward the top its trading range. This renewed strength enhanced a surge of weakness in the Mexican peso ahead of a Presidential debate this weekend.


The Mexican peso weakened significantly going into the end of the week. USD/MXN was at one point up a whopping 3.6% for the week before falling back to its converged 50 and 200DMAs
The Mexican peso weakened significantly going into the end of the week. USD/MXN was at one point up a whopping 3.6% for the week before falling back to its converged 50 and 200DMAs

Source: TradingView.com

Based on this surge, my exit from my short USD/MXN position came just in time. At the time, I pointed out that the risk/reward favored a relief rally for USD/MXN. Now that this rally has happened, I am eager to get in short again. I assume the passing of the debate without “incident” will help assuage whatever fears went into the debate to drive rush to the peso’s exits.

However, I will be patient: the U.S. dollar may break out above its trading range sometime soon based on increasing bond yields in the U.S. Moreover, NAFTA-related headlines could also cause dramatic swings in USD/MXN. So I will likely wait until the 18.8 to 19 range before considering a fresh short. A USD breakout will make me less inclined to short USD/MXN. I do not want to sustain a long in the pair because of its high carry (interest rate).

Be careful out there!

Full disclosure: no positions

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