Mexican Peso Forecast Overview:USD/MXN charges have damaged by vital help in current days, persevering with the pair’s descent be
Mexican Peso Forecast Overview:
- USD/MXN charges have damaged by vital help in current days, persevering with the pair’s descent because the US elections in early-November.
- The Mexican Peso, alongside the Canadian Greenback, are clear winners in FX markets as merchants put together for extra gridlock (Biden White Home, Senate GOP, Home Dems) in Washington, D.C.
- We are able to use the IG Consumer Sentiment Indexfor USD/CAD charges as an in depth proxy for USD/MXN publicity.
Mexican Peso Win Streak Continues Publish-US Elections
The Mexican Peso has had a powerful November to date, significantly within the wake of the US presidential election. The prospects for decreased commerce tensions with Mexico’s largest buying and selling associate, america, coupled with expectations for a continued accommodative US coverage outlook, has attracted speculative capital to the Mexican Peso. USD/MXN charges are on tempo for his or her second worst month of 2020, and solely the fifth time previously 5 years that USD/MXN charges have misplaced greater than -5% on a month-to-month foundation.
Mexican Peso Foreign exchange Financial Calendar – Remainder of Week
The Thanksgiving vacation in america upends monetary markets, creating illiquid buying and selling situations and a thinner financial calendar. That stated, there are nonetheless a number of information releases over the approaching days that might introduce volatility to USD/MXN charges in in any other case skinny markets – treacherous situations for brand new merchants given the prospect for sharp value swings. Thursday’s ultimate Q3’20 Mexican GDP launch and Banxico’s financial coverage assembly minutes might simply provoke sizeable strikes in an in any other case quiet market.
Really helpful by Christopher Vecchio, CFA
Buying and selling Foreign exchange Information: The Technique
USD/MXN Price Technical Evaluation: Each day Chart (November 2019 to November 2020) (Chart 1)
USD/MXN charges stay within the parallel downtrend relationship again to the coronavirus pandemic excessive set in April. The downtrend is strong, with three clear factors of resistance in April, September, and November – actually, the November contact of resistance got here on the day of the US election. Because the November resistance take a look at, which got here within the type of a bearish exterior engulfing candle, USD/MXN charges have been biased decrease.
Bearish momentum has accelerated, with USD/MXN charges beneath their each day 5-, 8-, 13-, and 21-EMA, which is in bearish sequential order. Each day MACD is trending decrease beneath its sign line, whereas Gradual Stochastics are nestled in oversold territory. In current days, two important Fibonacci retracement ranges serving as vital help have damaged: the 76.4% retracement of the 2020 low/excessive vary at 20.2349; and the 38.2% retracement of the previous 10-years of buying and selling low/excessive vary (April 2011 low/April 2020 excessive) at 20.3215.
USD/MXN Price Technical Evaluation: Weekly Chart (January 2014 to November 2020) (Chart 2)
Our weekly view stays constant. “The continued pullback from the March 2020 excessive means that the triangle breakout skilled in Q1’20 could finally yield to a return to the triangle. To this finish, momentum on the weekly timeframe stays firmly bearish, extra so than on the each day timeframe.
“USD/MXN charges are beneath their weekly 4-, 13-, and 26-EMA envelope. Weekly MACD is trending decrease beneath its sign line, whereas Gradual Stochastics are nestled in oversold territory. A pullback in the direction of symmetrical triangle help close to 19.7300 over the approaching weeks can’t be dominated out, nor can a deeper retracement in the direction of 19.3000.”
Really helpful by Christopher Vecchio, CFA
Constructing Confidence in Buying and selling
Utilizing a Proxy to Observe USD/MXN Retail Positioning
With respect to the distinction in efficiency between USD/CAD and USD/MXN charges in current weeks, it needs to be famous that the Canadian financial system is extra unbiased from the US financial system than is the Mexican financial system. Whereas america is each nations’ largest buying and selling associate, over 80% of Mexico’s exports go to america (in comparison with close to 70% for Canada), whereas 30% of Mexico’s GDP is derived from financial actions involving america (in comparison with 20% for Canada).
The shut proximity of each nations given their commerce relationship with america additionally implies that their currencies are inclined to commerce similarly as nicely. In different phrases, there’s a affordable foundation of expectation for USD/CAD and USD/MXN charges to commerce similarly. To this finish, the 20-day correlation between USD/CAD and USD/MXN charges is at the moment +0.81; one week in the past, the 20-day correlation was +0.80.
IG CLIENT SENTIMENT INDEX: USD/CAD RATE FORECAST (NOVEMBER 24, 2020) (CHART 3)
USD/CAD: Retail dealer information reveals 72.82% of merchants are net-long with the ratio of merchants lengthy to quick at 2.68 to 1. The variety of merchants net-long is 0.27% increased than yesterday and three.09% increased from final week, whereas the variety of merchants net-short is 2.49% decrease than yesterday and 37.59% decrease from final week.
We usually take a contrarian view to crowd sentiment, and the actual fact merchants are net-long suggests USD/CAD costs could proceed to fall.
Merchants are additional net-long than yesterday and final week, and the mixture of present sentiment and up to date modifications offers us a stronger USD/CAD-bearish contrarian buying and selling bias.
— Written by Christopher Vecchio, CFA, Senior Foreign money Strategist