USD/MXN Technical Outlook Worsens as Yearly Highs Come into Play
- USD/MXN could soon accelerate lower despite risk trends
- Yearly high levels from 2018 and 2019 broken and nearing, respectively
USD/MXN could soon accelerate lower despite risk trends
USD/MXN is in danger of picking up more momentum as the recent decline takes out support levels and gains ‘negative curvature’ to its path. It is a somewhat surprising development given that U.S. equities, the main barometer for risk appetite, is in sell-off mode.
Perhaps the market will begin to shun the higher yielding Mexican peso with continued stock market weakness, and lead USD/MXN back higher, perhaps not. The divergence in paths here is exactly why while correlations between markets can provide insight, they can also prove to be deceitful, and we need to also take the specific market in question and analyze it on its own merits.
Looking at USD/MXN in a bubble, we saw price this week drop below the 2018 high with the 2019 high up next around the 20.60 mark. After that we have the August 2019 high around 20.25. These could lead to bounces, and even perhaps a low, but it will take some work to turn the picture bullish.
For starters, a solid low and push higher is needed with the June low and trend-line off the coronavirus spike-high being recaptured. This would mean about a 5% or so rally from current levels.
All-in-all, the path of least resistance remains lower and could accelerate. This would of course be a good thing for those already short, but those looking to short it may be best to wait for a reaction or congestion period to help define a new set of levels for risk assessment so as to not get caught chasing. Would-be longs may be best served patiently waiting for a bullish response before looking to seek out a reversal.
USD/MXN Daily Chart (could accelerate, watch support levels)
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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.