Chart created with TradingView

Fundamental USD/MXN Speaking Factors:

  • Mexico struggles to cease the pandemic as its economic system continues to be laborious hit
  • An absence of Mexican knowledge depart USD/MXN uncovered to FOMC
  • USD/MXN bounces off key assist

The Mexican Peso now stands at a 6-month excessive versus the US Greenback as tech shares have led the best way for larger threat urge for food in the previous few weeks. That mentioned, a three-day sell-off in fairness markets managed to halt the slide within the US Greenback, however the bounce was significantly weak towards the Peso.

Regardless of the Peso’s relative energy, the Mexican economic system is predicted to shrink 10% this yr, following a small contraction in 2019, leaving greater than 34 million individuals out of labor. Forecasts are usually not optimistic, because the impression of Covid-19 has result in a rise in poverty, which I flip has result in a rise in violence within the nation. This has a giant impact on tourism, which accounts for greater than 15% of Mexico´s GDP, including extra hearth to the unemployment difficulty.

Mexico can be struggling to manage the unfold of the coronavirus because the nation has restricted entry to testing and it’s laborious to maintain individuals off the streets. The federal government has additionally been reluctant to inject loads of stimulus into the economic system, which isn’t serving to the economic system, and the Peso is loosing it’s long-term attractiveness as a carry commerce given its rate of interest is being decreased to assist home spending.

Regardless of the Peso’s latest energy towards the Greenback, USD/MXN remains to be 14% larger than the start of the yr, regardless of having given again 16% of the positive factors seen since March. At this level, I feel it’s unlikely that we see the pair near the degrees seen pre-coronavirus, provided that draw back momentum in USD/MXN is stalling, however we might see additional draw back stress attempting to try to fill within the coronavirus hole.

Trying forward, subsequent week has no main financial occasion within the calendar for Mexico, so USD/MXN is prone to stay delicate to broader market threat themes and USD pressures, which may very well be exasperated by the FOMC assembly on Wednesday.

USD/MXN day by day chart (December 2019 – August 2020)

USD/MXN Week Ahead: FOMC Tailwinds Could Lead to Volatile Trading

From a technical standpoint, the 21.19 Fibonacci stage is of accelerating significance as USD/MXN heads decrease. Thursday’s value motion confirmed this as value motion was reversed after bouncing off that assist. Whether it is damaged, the pair might appeal to additional promoting stress in an try and fill the coronavirus hole, which stands between 20.48 and 20.30. This is able to put the 76.4% Fibonacci stage at 20.18 as the important thing assist space. On the upside, preliminary resistance may very well be met at 21.84, adopted by the 50% Fibonacci stage on the 22 deal with, an space which has confirmed to be necessary up to now.

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Really useful by Daniela Sabin Hathorn

Constructing Confidence in Buying and selling

— Written by Daniela Sabin Hathorn, Market Analyst

Observe Daniela on Twitter @HathornSabin