USD/CAD
The US dollar has rallied slightly against the Canadian dollar during trading on Monday, which I find a bit interesting considering that it was Labor Day in the United States. So there would have been somewhat of a lack of interest in the US dollar overall. At least you would think that would be the case, but no, that’s not what we have seen. This isn’t to negate the negativity in this pair over the last couple of days. But when I look at it, I’m starting to see a bit of a rounding bottom. I think the rubber meets the road at the 200 day EMA at roughly 1.3872. Keep in mind that there is still a contentious uh set of circumstances between these two countries when it comes to trade. So it’ll be interesting to see how that plays out.
But one thing about this pair and the other pair that I’ll be covering next is that if the US economy tanks, it actually benefits the US dollar via the safety trade. Canada has 25% roughly of its GDP coming from exports to the United States. And we have just seen one of the worst quarters ever for Canada for exports. So that’s not a good sign. I do think eventually the US dollar will climb against the Canadian dollar. But for safety sake, I’d like to see a move above the 200 day EMA, which is at 1.3827. If we can break that, then I think we could get a move towards 1.43. But in the meantime, I think we’re just trying to find some type of bottom. 1.36 and 1.35, I believe are areas and offering significance more, but I also believe it’s a bit of a zone, if you will, of interest.
USD/MXN
The US dollar against the Mexican peso is pretty negative over the longer term. But what’s worth noting is that Mexico is the largest exporter of goods to the United States. It’s not China, despite what people think. So Mexico is particularly sensitive to what’s going on in America, probably even more so than the Canadians. If the US economy starts to shrink, that’s going to do bad things to the Mexican economy. Think of it in terms of owning a shop and your best customer gets laid off of his position. If he has no employment, he’s not going to be buying as much. For what it is worth, we are still stuck between 18.5 and 19 above.
The interest rate differential does favor Mexico. And if the economic situation is relatively strong, all things being equal, Mexico should attract more interest in the currency markets. You’ll notice that we are testing again, the 18.50 level, which is right in the middle of this golden pocket between the 50% Fibonacci retracement level and the 61.8% Fibonacci retracement level. I’ll be watching the US dollar across multiple currencies, not just the Canadian dollar and the Mexican peso to get an idea as to how things may play out. If the US dollar starts to strengthen suddenly against the Euro, against the British pound, et cetera, then I think the Mexican peso could be in for a bumpy ride. A move above the 19 pesos level could signify that we are in fact starting to turn things around and go back to the upside.
If we break down below the 18.50 level, a level we’re closer to at the moment, that could send the US dollar down to 18.21 and then eventually 18 in this pair. I think we’re coiling up here, trying to get a little bit of directionality and a move should be coming fairly soon. Volume will pick up in early September based on Wall Street trading. And that’s particularly important here because the dollar Mexican peso currency pair is almost exclusively traded in North America. So it does make a big difference as to what’s going on here as far as holidays, volume, volatility, et cetera. We are at an inflection point here. And if we start falling, I’ll be watching 18.21. And then after that, we could fall pretty significantly, which would actually be a risk on move.
If the rest of the world gets scared of balances in the cards, and there is real possible arguments to be made for that. If you look across various indices and the like. My name’s Chris. You can find me at thetraderguy.com.