USD MXN heading for further breakdown as peso extends recovery

Despite acute US dollar strength throughout the month of October thus far, the USD/MXN currency pair has been in a virtual state of free fall due to a sharp and prolonged rebound for the Mexican peso that has corresponded with the deterioration of Donald Trump’s campaign for the US presidency.

This sharp rebound for the peso was initially triggered immediately after the first 2016 presidential debate between Donald Trump and Hillary Clinton on September 26th, in which Clinton was widely considered to be the victor. At that point, USD/MXN had just reached an all-time high around 19.92, which meant that the peso was at a record low against the dollar. The Mexican currency had become extremely oversold on concerns over Trump’s very public and hardline positions on trade and immigration with respect to Mexico.

Since that first presidential debate, the situation for the Trump campaign has continued steadily to deteriorate due to subsequent debate performances and various controversies surrounding Trump’s questionable comments in the past, attitudes towards women and minorities, claims of political conspiracy, and tax issues. This is not to say that Clinton has been lacking at all in her own very serious issues regarding her past words and actions, but Trump’s problems appear to have far eclipsed Clinton’s, especially among undecided voters. The situation has left the vast majority of polls and projections showing an increasingly wider lead by Clinton over Trump.

As a result, the oversold Mexican peso has found new life, even against the recent strength of the US dollar. After falling from its record high in late September, USD/MXN initially broke down below a key support level around 19.45 (prior resistance), and then went on to plunge further, below the 18.90 support level and a key short-term uptrend line extending back to the mid-August lows. As Trump’s standing further decreased the perceived risk of his victory in November, the peso continued to recover and USD/MXN followed-through to the downside to end up at its current position around 18.50, near a new October low.

Although the election is not yet over, with exactly two weeks left before the November 8 election, polls and markets are leaning rather heavily towards a Clinton victory. If this continues to be the case, barring any last-minute upset by the Trump campaign, the Mexican peso could have significantly further to rebound and recover. Currently nearing a long-term uptrend support line that extends back more than two years to late-2014, any subsequent breakdown below this major trend line should open the way towards a downside target at the key 18.00 psychological support level.

StoneX Financial Ltd (trading as "FOREX.com") is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, FOREX.com does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date.

This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it. No opinion given in this material constitutes a recommendation by FOREX.com or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although FOREX.com is not specifically prevented from dealing before providing this material, FOREX.com does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Financial Ltd. StoneX Financial Ltd is a company incorporated in England and Wales with UK Companies House number 05616586 and with its registered office at 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is authorised and regulated by the Financial Conduct Authority in the UK, with FCA Register Number: 446717.

FOREX.com is a trademark of StoneX Financial Ltd. This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy. FOREX.com products and services are not intended for Belgium residents.