The Collapse of the Mexican Peso

As the selloff continued in global stocks, the Mexican Peso continued lower vs the US Dollar.


In what feels like years ago, on February 27th, we wrote about the fall of the Mexican Peso.  Fundamentally, we discussed how USD/MXN was heading higher as the carry trade was being unwound.  As stocks moved lower, traders had to sell pesos and buy back US Dollar and Euros.  As a result, both USD/MXN and EUR/MXN both were moving higher.  Technically, price of USD/MXN had broken out of 2 channels, back inside a long-term triangle, and had stalled near the 61.8% Fibonacci retracement level from the August 29th, 2019 highs to the February 17th lows.  The RSI was overbought,  but we discussed how it could become “more overbought”. This is how the chart looked on February 27th:

Source:  Tradingview,

As the selloff continued in global stock markets throughout the month of March, Emerging Market currencies, in general,  continued to move lower vs the USD.  In particular, the USD/MXN shot higher as demand for US Dollars increased significantly.  Although the US Fed flooded the markets with US Dollars and created additional swap lines to provide US dollar liquidity to Mexico, the fear of uncertainty surrounding the coronavirus and the US economy caused traders to flee Mexican pesos. In addition, the Central Bank of Mexico held an emergency meeting of its own on March 20th and cut the benchmark by 50bps to 6.5%.  This past weekend, President Trump also closed the US-Mexico border.   

Below is an updated chart of the USD/MXN.  As stocks moved lower, the emerging market pair continued to move higher.  On March 3rd , price put in a low of 19.1509 and it was off to the races.  Since then, USD/MXN has rallied almost 33% to an all-time high today of 25.4474, however has since pulled back slightly to 24.9228 as stock markets rallied today.  Notice how RSI did pull back for a short amount of time into the neutral area but reached a high yesterday of 95.97. 

Source:  Tradingview,

Initial horizontal support comes in 24.9557.  If today’s high is to be the high for a while, we can begin to look for Fibonacci levels below for more support.  The 38.2% Fibonacci retracement level comes in near 23.0410, which is also close to horizontal support.  Below that is the 50% retracement level at 22.2919.  Initial resistance is at today’s highs near 25.4447.  Today’s high also happens to be the 161.8% extension from the highs on March 19th to the lows on February 20th.  Above that is the target for a small flag pattern that has formed over the last few days near 26.65.

Source:  Tradingview,

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account