- The US dollar has been very noisy during the trading session on Tuesday, as President Trump has threatened both Mexico and Canada with a 25% tariff on February 1. At one point, people believed that Trump was likely to wait longer than that to do anything and perhaps try to work out a deal. However, it appears that he has decided to turn up the heat.
Technical Analysis
When you look at the technical analysis for this pair, it’s obvious that we are very bullish but it is also obvious that there are significant sellers just above, near the 21 MXN level, an area that has been important multiple times in the past. In fact, I believe this is a market that will continue to look at the region between 20 MXN and 21 MXN as a massive barrier to where we go next. That being said, if we can break above the high of this range, we could go much higher.
On the other hand, if we were to break down below the 20 MXN level, there is a strong possibility that the market could go plummeting. In that environment, this is a market that I think probably goes looking to the 200 Day EMA underneath, which is closer to the 19.29 MXN level. Anything below there could, of course, be very negative, but right now I think you’ve got a situation where traders will continue to assume that we are hanging out in this range until we figure out whether the trade war heats up in North America.
If that trade war does in fact heat up, very likely that Mexico will be the big loser here. If that’s the case, the US dollar will most certainly skyrocket from here, perhaps reaching as high as 25 MXN. If we do break down, then I think you probably see the market drift a bit lower, but whether the US dollar would actually plummet against the Mexican peso is a completely different story, and one that I don’t believe in right now. I think the only thing that you can count on here is going to be a lot of volatility.
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