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USD/MXN Week Ahead: Key Support Keeps Upward Momentum Going

USD/MXN Week Ahead: Key Support Keeps Upward Momentum Going

2020-08-23 04:00:00
Daniela Sabin Hathorn, Analyst
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Main USD/MXN Talking Points:

  • USD/MXN finds key support at 22.00
  • The US elections are likely to ramp up volatility in the surrounding weeks

The Mexican Peso struggles to maintain support against the Dollar as the week began with a warning from the Fed about the dire economic outlook, which put risk appetite on hold. But emerging market currencies have held up pretty well against the Dollar, especially as the DXY had another fall through on Thursday.

Ongoing concerns about domestic and international issues in the US means that investors are still reluctant to pick up a substantial bid in USD, giving risk-driven currencies a chance to claw back some of the coronavirus-led losses.

USD/MXN has been no exception, as a lagging US Dollar has meant the pair has been unable to surpass the 23 mark for the past two months, even as various countries around the world were reporting a significant increase in virus infections, of which Mexico is one of them. The pair now hangs around the 50% retracement level from the 18.55 – 25.46 surge, an important level for traders to keep an eye on. The last four sessions have found support at the 22 handle, resting on the descending trendline which has now turned into key support.

USD/MXN daily chart (03 March – 21 August 2020)

USDMXN Chart

Looking ahead, USD/MXN is likely to continue experiencing choppy price action as conflicting forces play out. The 50% Fibonacci at 22.00 is likely to continue being a key support area, followed by 21.84, where bearish pressure has been halted various times since mid-June. On the upside, the 50- and 100-day moving averages are likely to offer some sort of resistance, followed by the August high at 22.90, where previous bullish attempts to push higher have encountered increasing bearish pressure.

An important factor to keep in mind is the closeness of the US presidential election, which is likely to increase volatility in the surrounding weeks, causing a possible flight to safety and benefiting safe haven assets like the US Dollar.

--- Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin

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

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