USD/MXN, USD/ZAR and USD/JPY Forecasts – Carry Trade Continues to Show Signs of Life

USD/MXN Technical Analysis

The US dollar tried to rally a bit against the Mexican peso, but has really struggled at this point. Ultimately, I think this is a situation where we are more likely than not going to see every time, we rally some selling pressure to come in and push this market back down. After all, you get the swap paid to you at the end of every day as the Mexican peso has such a higher interest rate than the US dollar.

Currently, it looks like the 17.5 level is a major resistance barrier and I don’t think that it is going to be very easy to break above. The 17-level underneath should continue to be a floor, but if we break down below there, that opens up 16.5.

USD/ZAR Technical Analysis

The US dollar has tried to rally against the South African rand, but it is the same situation here that we have against the Mexican peso. You have a higher yielding currency asserting its pressure on the US dollar, especially now that we are worried the Federal Reserve may have to cut a couple of times this year.

The 50-day EMA comes into the picture just above. Ultimately, I think this is a market that goes lower, probably looking towards 15.7. Maybe though, if we break to the upside and we can clear the 16.5 level, the US dollar can take off, but until then, I am not impressed.

USD/JPY Technical Analysis

The US dollar has pierced the 50-day EMA for the 2nd day in a row as we wait for inflation numbers. At this point in time, if we can break 156 yen, I think that opens up 157.5 yen. This pair pulling back would make a certain amount of sense because there are a lot of questions out there about the financial system.

Over the longer term, the interest rate differential will continue to favor the US dollar and of course, the Bank of Japan has no real hope of tightening monetary policy longer term. I think that 200-day EMA below continues to be held.

If you’d like to know more about FX carry trades and how to manage the risks, please visit our educational area.