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USD/MXN Week Forward: FOMC Tailwinds Could Lead to Volatile Trading



Chart created with TradingView

Most important USD/MXN Speaking Factors:

  • Mexico struggles to cease the pandemic as its economic system continues to be arduous hit
  • A scarcity of Mexican knowledge depart USD/MXN uncovered to FOMC
  • USD/MXN bounces off key help

The Mexican Peso now stands at a 6-month excessive versus the US Greenback as tech shares have led the way in which for greater threat urge for food in the previous couple of weeks. That mentioned, a three-day sell-off in fairness markets managed to halt the slide within the US Greenback, however the bounce was significantly weak in opposition to the Peso.

Regardless of the Peso’s relative energy, the Mexican economic system is predicted to shrink 10% this 12 months, following a small contraction in 2019, leaving greater than 34 million folks out of labor. Forecasts will not be optimistic, because the affect of Covid-19 has lead to a rise in poverty, which I flip has lead to a rise in violence within the nation. This has a giant impact on tourism, which accounts for greater than 15% of Mexico´s GDP, including extra hearth to the unemployment situation.

Mexico can be struggling to management the unfold of the coronavirus because the nation has restricted entry to testing and it’s arduous to maintain folks off the streets. The federal government has additionally been reluctant to inject a variety of stimulus into the economic system, which isn’t serving to the economic system, and the Peso is loosing it’s long-term attractiveness as a carry trade given its rate of interest is being diminished to assist home spending.

Regardless of the Peso’s current energy in opposition to the Greenback, USD/MXN continues to be 14% greater than the start of the 12 months, regardless of having given again 16% of the positive aspects seen since March. At this level, I believe it’s unlikely that we see the pair shut to the degrees seen pre-coronavirus, provided that draw back momentum in USD/MXN is stalling, however we might see additional draw back strain making an attempt to try to fill within the coronavirus hole.

Wanting forward, subsequent week has no main financial occasion within the calendar for Mexico, so USD/MXN is probably going to stay delicate to broader market threat themes and USD pressures, which might be exasperated by the FOMC assembly on Wednesday.

USD/MXN day by day chart (December 2019 – August 2020)

USD/MXN Week Ahead: FOMC Tailwinds Could Lead to Volatile Trading

From a technical standpoint, the 21.19 Fibonacci stage is of accelerating significance as USD/MXN heads decrease. Thursday’s worth motion confirmed this as worth motion was reversed after bouncing off that help. Whether it is damaged, the pair might entice additional promoting strain in an try to fill the coronavirus hole, which stands between 20.48 and 20.30. This is able to put the 76.4% Fibonacci stage at 20.18 as the important thing help space. On the upside, preliminary resistance might be met at 21.84, adopted by the 50% Fibonacci stage on the 22 deal with, an space which has confirmed to be vital up to now.

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— Written by Daniela Sabin Hathorn, Market Analyst

Comply with Daniela on Twitter @HathornSabin

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