News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
EUR/USD
Bearish
Oil - US Crude
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Wall Street
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Bearish
GBP/USD
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Bearish
More View more
Real Time News
  • A forex trader is strategic, disciplined and always switched on to the markets. Learn how to build an FX mindset here: https://t.co/tB3aAErd70 https://t.co/Ilqz8BWTk0
  • The final ‘full’ week of the year brings about the last wave of significant event risk from around the globe, including three central bank rate decisions (Fed, BOE, & BOJ). Get your market update from @CVecchioFX here:https://t.co/PhqxSPlngI https://t.co/XX57vSjQwV
  • Greed is a natural human emotion that affects individuals to varying degrees. Unfortunately, when viewed in the context of trading, greed has proven to be a hindrance more often than it has assisted traders. Learn how to control greed in trading here: https://t.co/kODPAfJE79 https://t.co/HOvzuOICQx
  • Ever wonder if there are other chart types that can be sued for technical analysis? HLOC charts are discussed in the following article as well as their pros and cons. Learn more here: https://t.co/qV3c7a4YR3 https://t.co/32hYzqhuZ9
  • The Australian Dollar sits on the crossroads of Treasury yields, the S&P 500 and US fiscal stimulus expectations. Will $AUDUSD gains slow? Chinese Q4 GDP and Australian jobs data are due. Get your market update from @ddubrovskyFX here: https://t.co/BsYmmWFYOH https://t.co/HhLqb2iVgk
  • #Gold prices have come under significant pressure to kick-off 2021. However, the formation of bullish technical patterns across multiple timeframes suggests that a rebound higher may be at hand. Get your market update from @DanielGMoss here: https://t.co/Dpf8N4Fh0T https://t.co/pnZpnM9yT5
  • The ISM manufacturing index plays an important role in forex trading, with ISM data influencing currency prices globally. Learn about the importance of the ISM manufacturing index here: https://t.co/Xr3xtoFpZy https://t.co/yCtLFemdNc
  • GBP underpinned as BoE downplays negative rates, alongside vaccine rollout. Get your market update from @JMcQueenFX here: https://t.co/n6V6uw0XV5 https://t.co/Toq2fxSdBE
  • Technical analysis of charts aims to identify patterns and market trends by utilizing differing forms of technical chart types and other chart functions. Learn about the top three technical analysis tools here: https://t.co/KDjIjLdTSk https://t.co/5VzSt5Ak7R
  • The Federal Reserve System (the Fed) was founded in 1913 by the United States Congress. The Fed’s actions and policies have a major impact on currency value, affecting many trades involving the US Dollar. Learn more about the Fed here: https://t.co/ADSC4sIHrP https://t.co/Jkv0onMyZw
Mexican Peso Outlook at the Mercy of US Economic Trends

Mexican Peso Outlook at the Mercy of US Economic Trends

US Dollar, Mexican Peso, US-Mexico Trading Relations, Understanding the Core-Perimeter Model – TALKING POINTS

  • How to trade the Mexican Peso against the US Dollar
  • What is the US-Mexico trading relationship and why does it matter for USD/MXN?
  • How the relationship between the US and Mexico fits into the Core-Perimeter model

How The United States-Mexico Relationship Impacts USD/MXN

The United States and Mexico have a close economic relationship that is underpinned by their geographical proximity. Cross-border regional trade agreements like NAFTA– now replaced by the USCMA – reinforce their inter-connectedness. However, the disparity in economic development between the core (US) and perimeter (Mexico) creates an asymmetric relationship.

The US economy is the world’s largest economy and is overwhelmingly consumer-driven, making it is less vulnerable to the ups and downs of the global business cycle than an export-oriented one like Mexico. Furthermore, the latter’s growth trajectory is in large part predicated on robust demand from the former. Indeed, the US accounts for approximately 86% of Mexico’s cross-border sales.

Mexico Trade With US Dwarfs Total Trading Volume With Other Partners (2018)

Chart showing Mexico Trade with the US

Source: Bloomberg

Therefore, if the economic outlook for the US is optimistic and demand for Mexican goods consequently rises, an expected rise in volume of trade leads capital to flow from core to perimeter. This is amplified by money from investors looking for the cyclicality of Mexican Peso-denominated assets to offer outsized returns against an upbeat backdrop.

In this environment, the USD/MXN exchange rate typically weakens. That dynamic is magnified by higher risk tolerance among investors, who might not be as willing to hold onto cycle-sensitive assets in economically unstable conditions.

If there is a disruption in economic growth, the flow of capital typically reverses. The result is a stronger USD/MXM exchange rate as investors divest of riskier assets in the perimeter (Mexico) to park their capital in comparatively-safer vessels in the core (US). Here, abundant liquidity dulls volatility amid market turmoil.

Chart showing USD/MXN

Even if the growth-disrupting catalyst originates in the United States, traders seem to prefer US Treasury bonds and the Dollar over their Mexican equivalents. To put it another way: capital still gravitates from perimeter to core.

Read more on the top 5 emerging market currencies and how to trade them.

Key Takeaways on How to Trade USD/MXN:

  • When the growth outlook is positive and risk appetite is high, capital frequently flows out of the core (US) and into the perimeter (Mexico)
  • This dynamic reverses if economic activity in the core is disrupted, putting the growth trajectory of the perimeter in jeopardy
  • The Pesois strongly influenced by the US business cycle because of the heft of the world’s largest economy and its geographical proximity to Mexico

MORE MACRO FOREX TRADING GUIDES IN THIS SERIES

--- Written by Thomas Westwater, Contributor for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwateron Twitter

https://www.dailyfx.com/forex/fundamental/article/special_report/2020/06/16/Mexican-Peso-Outlook-at-the-Mercy-of-US-Economic-Trends.html

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES