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.

Free Trading Guides
EUR/USD
Bullish
Oil - US Crude
Mixed
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
Mixed
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
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
More View more
Real Time News
  • (#ASEAN Fundamental Outlook) The US #Dollar is falling against ASEAN currencies such as the Singapore Dollar and Indonesian #Rupiah as stock markets rise. Watch out for US-China escalation and #Brexit talks $USDSGD $USDIDR $USDMYR $USDPHP - https://www.dailyfx.com/forex/fundamental/article/special_report/2020/06/01/US-Dollar-Wilting-as-IDR-SGD-gain-US-China-Spat-Brexit-Talks-Eyed.html?CHID=9&QPID=917702&utm_source=Twitter&utm_medium=Dubrovsky&utm_campaign=twr https://t.co/esN2pUqyZW
  • RT @FactSet: Since March 31, $SPX forward 12M EPS has declined by 14.2% while $SPX price has increased by 17.2%. https://t.co/eQTjXfg2dc ht…
  • USD/CAD holds near the monthly low (1.3728) after snapping the range bound price action carried over from April, but Canada’s 1Q Gross Domestic Product (GDP) report may undermine the recent decline. Get your $USDCAD market update from @DavidJSong here: https://t.co/47Pjp03afU https://t.co/s4O86pwu2O
  • Market snapshot: #AUD surging with #NZD at the expense of #USD and #JPY. #HKD also down amid political uncertainty while US equity futures trade in the green with APAC stocks
  • Commodities Update: As of 02:00, these are your best and worst performers based on the London trading schedule: Silver: 1.71% Gold: 0.58% Oil - US Crude: 0.02% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/XnIMS4xarU
  • Forex Update: As of 02:00, these are your best and worst performers based on the London trading schedule: 🇦🇺AUD: 0.79% 🇳🇿NZD: 0.52% 🇬🇧GBP: 0.46% 🇪🇺EUR: 0.24% 🇯🇵JPY: 0.09% 🇨🇭CHF: 0.08% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/3TmObf8qMo
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 96.39%, while traders in US 500 are at opposite extremes with 75.15%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/wjEN7NrhgH
  • #USDKRW down with the pair trading just within the range of the uptrend. Do you think it will break this week? https://t.co/FvyNYJy701
  • Forex Update: $USD continues to weaken against its major counterparts, led by $AUD (+0.86%), while $JPY lags behind (+0.11%). https://t.co/5wayEueKCi
  • GBP/USD: cluster of recent lows around the 1.2160 level and the Tuesday’s low print at 1.2190 may act as the first level of support for the pair. Get your $GBPUSD technical analysis from @nickcawley1 here:https://t.co/yvGzi5hoQw https://t.co/9qFx1oKZsE
USD/MXN Outlook: Mexican Peso Defies Fundamentals Ahead of Rate-Cut Decision

USD/MXN Outlook: Mexican Peso Defies Fundamentals Ahead of Rate-Cut Decision

2020-02-09 05:00:00
Daniela Sabin Hathorn, Analyst
Share:
Please add a description for the image.

Main USD/MXN Talking Points:

  • The Mexican Peso continues to overpower the US dollar, USD/MXN returns to 2018 lows
  • Despite an uptick in inflation, a 25-bps is expected next week
  • Risk-off sentiment will continue to guide the pair in the short-term

The Mexican Peso has managed to remain strong and overpower the US dollar once again, despite no strength in its underlying economy.

At the end of last week, we analysed how the coronavirus outbreak was having a negative effect on risk-on assets like the Mexican Peso, which had enjoyed a recent period of strength given the relative calm surrounding markets in the month of December.

The Mexican currency weakened around 1.3% against the US dollar towards the end of last week, but price action reversed again as the new week started, causing a further 1.76% drop in USD/MXN, reaching levels not seen since October 2018, around 18.56. But towards the end of this week, price action has once again turned to the upside and the dollar seems to be regaining the upper hand. But how sustainable is this price action pattern?

Inflation picks up but underlying risks remain

Mexican inflation ticked up in the month of January, partially due to higher taxes and a surge in agricultural prices. The year on year figure came in at 3.24%, up from 2.83% in the previous month. Despite being above Banxico’s target rate of 3%, the central bank warned in December’s meeting that there were still persistent risks to underlying inflation and economic growth, sparking speculation that another 25-bps cut will follow at their next meeting, which will take place next week on Thursday the 13th of February.

A Bloomberg poll on the likelihood of a rate cut at next week’s meeting showed that out of 9 expert EMEA analysts, 8 of them believe rates would be reduced by 0.25% to 7.0%, whilst the remaining analyst expected rates to remained unchanged at 7.25%. If this were to happen, we would expect to see some weakness in the Mexican Peso, diminishing its value as a carry trade currency, currently one of its most valuable traits.

Chart 1: Bloomberg poll on the likelihood of a rate cut on February 13

Rate cut probabilities

Source: Bloomberg

USD/MXN analysis and forecast

USD/MXN Daily Price Chart

If we look at the USD/MXN daily chart we can see that the price action has followed a similar pattern to the one we were analysing at the end of last week. USD/MXN entered the key support level on Tuesday and remained range-bound as the dollar was supported near the 18.60 handle.

The upward surge in Friday’s session has seen the pair erase most of the losses experienced during the week, but risk remains on the downside in the near-term. The 50-day SMA has tracked the upper bound of the descending trendline since the end of January, so we could see some near-term resistance around 18.85, which would push higher towards the USD/MXN 19 handle if broken.

On the downside, we expect to continue to see a key support zone between 18.73 and 18.49, but if broken we could see USD/MXN returning to 2018 lows at 17.93.

It looks at this point that price action will follow the path of least resistance, which at this point seems to be lower. A resurgence in risk-off sentiment would see an upward correction come in to play, but the effect will probably be short-lived. Key focus will be on next week’s interest rate decision meeting and the rhetoric used by the Central Bank to describe their growth prospects.

Despite its performance in the last few months, the longer-term expectation is that price action will return to the higher rage of 19, supported by strength in the US economy.

--- Written by Daniela Sabin Hathorn, Junior Analyst

Follow Daniela on Twitter @HathornSabin

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

DISCLOSURES

News & Analysis at your fingertips.