USD/MXN Outlook: Recent Correction Makes the Peso Attractive

MAIN USD/MXN TALKING POINTS:

• Market volatility resumes as traders keep an eye on increasing infection rates
• USD/MXN holds on to support but fails to break a key resistance

Another shaky week has come to an end for the Peso, as renewed coronavirus jitters swept risk-on sentiment across the board. Latin American currencies have been the hardest hit towards the end of this week, despite equity prices remaining pretty stable.

News was out on Thursday that the US had sanctioned some Mexican firms due to their involvement in the Venezuelan oil trade, which caused the Peso to slump 2% against the Dollar, taking USD/MXN back above 22.80. But downside correction reappeared on Friday as oil prices managed to climb for a fifth straight session after OPEC+ announced it would move to enforce 100% of the agreed production cuts. Nations will have until the 22nd of June to submit plans on exactly how they will compensate for any previous non-compliance.

This past week, USD/MXN managed to recover some upside momentum as traders were cautious about placing their capital, aware that any news relating to the re-emergence of wide-spread coronavirus could send markets packing. This caused the US Dollar to regain some bid momentum, with the Dollar Basket crawling back above 97.00.

But current conditions and market sentiment do not yet call for immediate action as the Mexican Peso still has some advantage over the Dollar. One could say that the recent upward adjustment has reset USD/MXN downside momentum, allowing for further drops to happen. Price action has been focused between 22.00 and 22.50 during the last 5 trading days, and further risk-on could be seen returning next week, possibly pushing the lower boundary in USD/MXN.

USD/MXN DAILY CHART (12 FEBRUARY – 19 JUNE 2020)

When trading resumes later today we could see renewed bid for the Peso as speculative traders might find the current level attractive to sell, somewhere between 22.55 and 22.65. The main challenge for Peso bulls is to overcome the 50% Fibonacci support at 22.17, which has been critical in the past few trading sessions.

On the upside, the 100 day moving average can be seen as a key area of resistance, coinciding with the 38.2% retracement level as well as the 23.00 psychological level, therefore a critical area for the Dollar bulls to target. If broken, further upside momentum can be seen towards May highs at 24.89, although some selling pressure may appear around 23.49 – 23.65.

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