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USD/MXN Outlook - Mexican Peso Besting a Weak US Dollar, Volatility Remains Extreme

USD/MXN Outlook - Mexican Peso Besting a Weak US Dollar, Volatility Remains Extreme

Nick Cawley, Strategist

USD/MXN Price, News and Analysis:

  • After printing a multi-decade high at the start of the week, USD/MXN has slumped.
  • Mexican Peso interest rate differential remains attractive against the USD.

USD/MXN – Three Day Collapse Nears Short-Term Support

USD/MXN traded at just under 25.50 on Monday, its highest level in decades before making a sharp reversal and falling for three straight days. The sell-off was driven by news that in the US, the USD2 trillion coronavirus rescue package was finally being approved, weakening the greenback. While the US dollar remains the safe-haven asset of choice, the massive US liquidity interventions of late will eventually drive the US dollar lower, with higher yielding currencies like the Mexican Peso likely to benefit. While both countries have cut interest rates lately, the Fed rate currently sits at 0.00% to 0.25%, while the Mexican interest rate is at 6.5%, a substantial yield pick-up over the greenback.

The daily USD/MXN chart suggests that the pair may look to set up a trading range between 22.82 and 23.82, two important short-term Fibonacci levels. However, with the current levels of volatility in the pair, this range may be broken quickly and so traders should look to protect themselves by adding in extra tolerance. The 50% Fibonacci retracement is at 22.014 and may be a better level for bullish traders to consider.

For all market moving data and events please the DailyFX calendar

USD/MXN Daily Price Chart (October 2019 – March 27, 2020)

USD/MXN Outlook - Mexican Peso Besting a Weak US Dollar, Volatility Remains Extreme

Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

What is your view on USD/MXN – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

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