The dollar has been in free fall for the whole year. This has been good for the stock market, since products exported by the United States are more competitive. Multinational firms are the biggest beneficiary. The pink line is the S & P 500 and the dollars action has been a real force in the continuing bull market.

The chart below is a comparison of  the U.S. Dollar and the Mexican Peso. You can see the continuing strength in the peso as the dollar has continued to slide. The pink line is the peso and the green is the U.S. Dollar.

On July 24th I wrote: “The Mexican Peso is currently very overbought against the US Dollar. We should see a bounce in the dollar against the peso in the coming weeks. The question is whether prices will stabilize and form a new trading range at or above its current value. A break below 17 would suggest that we may see a return to the 15 peso area versus the dollar. With the continued weakness in the dollar this is a real possibility.”

We’ve had a very small correction from 17.50 to almost 18 in the peso since that time. We are now approaching the 50 day moving average line and I what doubt that much progress will be made. We would need a move above that line and have a successful test (coming back to that line) in order to envision continued weakness in the peso vs. the dollar.

The U.S. Dollar is in very dangerous territory. A sustained move below 92 could easily take it back to the lows of 2014. I remember moving to San Miguel de Allende in 2014 and the peso was quoted at 12.5 to the U.S. dollar. You can see where the dollar is bouncing off support at around 92, so we’ll just have to see what develops.

I believe that we won’t see any sustained strength in the dollar and weakness in the peso until:

 Quantitative easing is reversed.

Interest rates are allowed to to go higher.

Without those actions, little will change…

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