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USD/MXN – The Grind Continues, but Has Solid Pattern Potential

USD/MXN – The Grind Continues, but Has Solid Pattern Potential

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USD/MXN Highlights:

  • USD/MXN continues to work on wedging pattern
  • EM currencies holding up relative to DM currencies
  • Watch risk trends as fall approaches

USD/MXN continues to work on wedging pattern

Not a whole lot has changed since last week’s USD/MXN piece. Price action remains unfavorable in the short-term, but with some time that could give-way to a nice move out of a developed wedge formation.

Overall, when stepping back and assessing the big-picture, emerging market (EM) currencies are holding up well versus the USD when compared to the developed market currencies (EM). Last month saw a massive 4%+ slide in the DXY index, but EM held. This could be a sign of relative strength, and if the dollar turns higher in a meaningful manner it could bode well for pairs like USD/MXN.

Keep an eye on stocks too, there is potential with risks in the fall (ie. Coronavirus raging, U.S. elections) that stocks weaken during the most seasonally weak time of the year. A breakdown in stocks, especially if it is a full-on risk-off event, will almost certainly be a strong tailwind for USD/MXN as investors shun the high-yielding, riskier Mexican peso and other emerging market currencies.

Looking at USD/MXN from a pure technical standpoint, the wedge needs more time, maybe another couple of weeks to really mature. The trend lower from the April high suggests we could still see a breakdown, but keep an eye on the rising 200-day and 2018 high just under 21. It is near confluence with the bottom of the wedge. A breakout to the top-side is also possible. The nature of these patterns doesn’t always give the best directional cues, but does point to a pending breakout. Following its lead is the key.

For now, standing aside appears prudent until murky waters become clearer…

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USD/MXN Daily Chart (still working on wedge formation)

USD/MXN daily chart

USD/MXN Chart by TradingView

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---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

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