USD/MXN bears need a Peso-maker after this year’s start

As we’ve noted repeatedly over the first trading week, emerging market currencies have been getting walloped as panicked FX traders sell any holdings they see as risky for the perceived safety of the US dollar and Japanese yen. As the chart at the bottom of this report shows, the Mexican peso has certainly not been spared from the EM FX massacre.

Despite its close ties with the "best house in a bad neighborhood" US economy, Mexico’s economy has downshifted to a much slower pace of growth than we throughout the first half of last year. So far this year, peso traders have be "treated" to a series of lackluster data points south of the border:

  • Manufacturing PMI came in at 52.4, down from 53 last month and the mid-50s at the start of last year
  • Inflation dropped to 2.1% y/y from 3.1% at the start of 2015
  • Consumer Confidence ticked up slightly to 93, but still sits in the middle of 2015’s 90-95 range
  • Business Confidence fell to 51.4, its lowest level in over a year
  • Industrial Production fell to 0.1% growth year-over-year, the second lowest reading of 2015

Combined with the ongoing turmoil in China and falling commodity prices, it’s not surprising that peso bulls have been spooked out of their positions. While the country’s close trade ties with the US economy could cushion the impact of a major global slowdown, the peso still seems poised for more weakness against the world’s reserve currency on a fundamental basis.

Technical View: USD/MXN

The chart is not any prettier for USD/MXN bears. USD/MXN trended consistently higher throughout all of last year, before breaking out above previous resistance in the 17.35 zone to a new all-time high last week. It’s been almost 18 months since the pair traded meaningfully below its 100-day MA, the hallmark of a consistent bullish trend.

At this point, the secondary indicators are showing exactly what you’d expect: the lagging MACD indicator shows strong and growing bullish momentum, though the RSI indicator is in overbought territory raising the chance of a near-term pause.

Moving forward, we would expect the previous resistance level at 17.35 to provide support on any near-term dips, followed by the 100-day MA near 16.85 if the 17.35 floor is broken. To the topside, there are no previous levels of resistance, though the near-term 161.8% Fibonacci extension at 17.96, followed by the same Fibonacci extension of the 2009-2011 pullback at 18.10 (not shown).

As always, the trend is the traders’ friend and it’s hard to argue that the trend in USD/MXN points anywhere but up.

Source: FOREX.com

For more intraday analysis and market updates, follow us on twitter (@MWellerFX and @FOREXcom)

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 Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.

OPEN AN ACCOUNT