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USD/MXN: Can Mexican Peso Rally Last Amid US Dollar Dominance?

USD/MXN: Can Mexican Peso Rally Last Amid US Dollar Dominance?

2020-02-19 17:27:00
Rich Dvorak, Analyst
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USD/MXN FORECAST – MEXICAN PESO SPIKES TO 16-MONTH HIGH DESPITE BANXICO RATE CUT & US DOLLAR STRENGTH

  • USD/MXN price action plunged 5.4% since late November and leaves the Mexican Peso at 16-months highs against the US Dollar
  • The Mexican Peso could keep climbing as the novel coronavirus outbreak wreaks havoc across China and global supply chains
  • Spot USD/MXN continues to bleed lower despite another Banxico interest rate cut and widespread demand for safe-haven currencies

MXN price action has climbed 3.5% on balance since the beginning of January. Despite a fourth-consecutive 25-basis point interest rate cut announced earlier this month by Banco de Mexico, or Banxico, the Mexican Peso has remained resilient and is outperforming other top emerging market currencies so far this year.

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Spot USD/MXN currently trades at its lowest level since October 2018 due to the ongoing stretch of gains recorded by the Mexican Peso, which has confounded many US Dollar bulls as the Greenback presses its strongest reading since May 2017 according to the US Dollar Index.

USD/MXN PRICE CHART: MONTHLY TIME FRAME (FEBRUARY 2013 TO FEBRUARY 2020)

USDMXN Price Chart Mexican Peso Forecast

I noted in a recent Mexican Peso Forecast, however, that the economic shock to China and global GDP growth stemming from the novel coronavirus outbreak has presented an opportunity for Mexico and potentially bullish tailwind to MXN price action.

This is owing to the prospect that businesses are likely shifting supply chains – and capital – away from China to other low-cost manufacturing countries such as Mexico, which is in addition to USMCA deal optimism.

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Weakness in USD/MXN over recent months has pushed the US Dollar below its long-term trendline of support extended through the series of higher highs printed by spot prices since mid-2015.

This could, in turn, open up the door to broader retracement lower with USD/MXN bears perhaps looking to the 18.000 handle as a downside target.

USD/MXN PRICE CHART: WEEKLY TIME FRAME (DECEMBER 2016 TO FEBRUARY 2020)

USDMXN Price Chart Mexican Peso Forecast

Yet, a weekly USD/MXN chart brings to light a more immediate obstacle faced by Mexican Peso bulls.

The slow-and-steady bleed lower in USD/MXN since last year’s swing high leaves spot prices hovering slightly above a key technical support level highlighted by the 23.6% Fibonacci retracement of its trading range since January 2017.

If this area of confluence around the 18.500 mark fails to springboard spot USD/MXN price action back higher, various weekly lows printed throughout 2018 may come into focus as the EM FX pair gravitates along the bottom channel of its Bollinger Band ™.

USD/MXN PRICE CHART: DAILY TIME FRAME (NOVEMBER 2019 TO FEBRUARY 2020)

USDMXN Price Chart Mexican Peso Forecast

Zooming in on a daily USD/MXN chart emphasizes the sharp 5.4% drop in spot prices since the November 28 peak.

While the Mexican Peso may prolong its advance against the US Dollar and other major currency pairs, it looks like USD/MXN is trying to rebound with spot prices probing short-term downtrend resistance posed by the 8-day exponential moving average.

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A bullish MACD crossover possibly indicates that a larger reversal is brewing to the detriment of the Mexican Peso, but the 34-day EMA and negatively-sloped trendline have potential to thwart a bounce-back attempt.

Keep Reading – US Dollar Forecast: USD Trade Setups & Themes to Watch

-- Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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

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