USD/MXN Wavers as Merchants Look to Fed for Taper Clues

USD/MXN FORECAST:

• The Mexican peso begins the week with a impartial bias regardless of broad-based U.S. greenback weak spot mirrored within the DXY Index
• USD/MXN oscillates between small positive aspects and losses, however continues to commerce between horizontal resistance at 20.20 and short-term pattern line help close to 19.85
• On this article we current crucial technical ranges for USD/MXN within the coming days

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USD/MXN began the week with a largely impartial bias regardless of broad-based greenback weak spot mirrored within the DXY Index, even as considerations over rising COVID-19 instances and fragile market sentiment continued. On the New York shut, the pair was broadly flat, buying and selling across the 20.00 mark.

On the index stage, the DXY’s retreat responded partly to mushy U.S housing information launched earlier within the day. Based on the Census Bureau, new residence gross sales rose by 676,000 models, the lowest stage since April 2020 and far under consensus of 798,000. The poor outcomes counsel that the housing market have peaked, a truth which will strengthen the argument that inflation is transitory and that financial stimulus should still be essential to help the restoration.

To perceive what the Fed might do down the highway, it will be significant for merchants to intently comply with Wednesday’s FOMC price announcement. No modifications are anticipated, however the central financial institution might supply steerage on the following steps for financial coverage normalization and on the inflation outlook following the red-hot June CPI print. Having stated that, this calendar occasion is more likely to be the following volatility catalyst for USD/MXN and most forex pairs the place the greenback is current for that matter.

In mild of delta-variant dangers, the slowdown in financial exercise mirrored in weak companies sector information, and rising indications that inflationary pressures could also be transitory, Fed officers are more likely to stay cautious and counsel they are going to be affected person earlier than starting to cut back lodging. Any trace that the QE tapering announcement is not going to happen this summer season or early fall, however towards the tip of the yr, may depress Treasury yields and push USD/MXN decrease within the close to time period.

Alternatively, if the central financial institution adopts a extra hawkish tone and indicators a taper determination may emerge within the third quarter, the greenback may shoot up throughout the board, leaving rising market currencies in a precarious place. Whereas the latter situation is much less more likely to materialize, it shouldn’t be utterly dominated out, because the Fed can typically shock buyers.

From a technical perspective, not quite a bit has modified since our final USD/MXN evaluation printed final week. USD/MXN, after stalling across the 200-day SMA, continues to commerce between horizontal resistance at 20.20 and short-term trendline help, now crossing the 19.85 space. For value to amass a robust directional bias, it should transfer both above resistance or under help. That stated, if resistance is damaged decisively, USD/MXN may climb in the direction of the 20.75 area, the place the June excessive converges with a long-term bearish trendline. On the flip facet, if value breaches help, sellers may push the trade price in the direction of 2021 low within the 19.55 zone, adopted by the 19.00 psychological stage.

USD/MXN TECHNICAL CHART

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—Written by Diego Colman, DailyFX Market Strategist