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Mexican Peso Technical Analysis: USD/MXN Scales the 20.00 Wall

Article By: ,  Sr. Strategist
November 13, 2024 4:54 PM

Mexican Peso, USD/MXN Talking Points:

  • The immediate reaction to last week’s election was weakness in USD/MXN, with the pair pushing back below the 20.000 handle, albeit temporarily.
  • That level at the 20-handle has been a big deal for USD/MXN over the past few months, even with the negative roll on the long side of the pair.

It was a climactic outing in USD/MXN last week on the back of US election results. While the pair initially broke out to a fresh two-year-high, the move couldn’t last, and price soon pulled back below the 20.000 handle that’s become a big deal for USD/MXN over the past few months. Bulls showed up on Friday of last week to push back above that price and in early-trade this week, the topside move has continued.

The net so far has been a strong defense of 20.000, which helped to set the low on the Wednesday after the election following a large retracement. And with one day of testing below that price on the Thursday after, bulls have continued to show a greater and greater hold of control.

 

USD/MXN Daily Price Chart

Chart prepared by James Stanley, USD/MXN on Tradingview

 

Mexican Peso Fundamentals: Tradewinds v/s Rates

 

At this point USD/MXN continues to show negative rollover on the long side and positive roll on the short side, given the rate divergence between the two economies.

And while carry can often have an impact on trend, that’s not always the case, particularly when forward-looking fundamentals suggest possible change on the horizon. And given the expectation around Trump’s US-first trade policies, there can be a bearish expectation around that for the Mexican Peso and perhaps even the Mexican economy, as a whole.

But there is a recent script from which to draw, as Trump’s policy pledges haven’t deviated far from his last term and when he was elected in 2016, there was a strong move that developed and held through the 2017 open. But in the six months that followed that move was entirely priced-out and then some, a fact made even more impressive when considering that the Fed was moving into a rate hike backdrop at the time.

So that bearish fundamental expectation around MXN could be perhaps muted a bit if we look at the most recent example, and then consider the fact that even if there is an increase in tariffs, continued growth in the United States and fiscal stimulus could effectively benefit Mexico, on net.

From the weekly chart USD/MXN is currently holding within a rising wedge and that’s a formation often followed with aim of bearish reversals. And over the past week the pair has tracked larger themes of USD-strength quite well. So, if we do see reversion in USD and DXY, this could be an item of attraction on a longer-term basis.

Also of interest on the short side of the pair is the positive roll given the divergence between US and Mexican interest rates. If we do see that USD-weakness theme get a shot-in-the-arm anytime soon, that could be an additional factor to help drive flows for reversal scenarios.

 

USD/MXN Weekly Chart

Chart prepared by James Stanley, USD/MXN on Tradingview

 

USD/MXN Strategy

 

While there could be bearish potential in the future, that’s not the case from current price action as buyers have continued to push the envelope higher. And the US Dollar has been in a consistent march-higher, particularly after last week’s FOMC rate decision brought question to the Fed’s rate cut plans for 2025.

Notably, however, while Mexico might be one of the most impacted economies from tariffs, the Peso isn’t currently weakening as quickly as the Euro or even the Japanese Yen. And there is some technical context of note as it’s the 76.4% Fibonacci retracement of 2021-2024 move that held the highs last week and remains on the radar as key resistance. That plots at 20.7642, and there’s support at the recent higher-low from prior resistance around 20.3572, which is the spot that bears would need to test though to show some element of control.

 

USD/MXN Four-Hour Chart

Chart prepared by James Stanley, USD/MXN on Tradingview

 

--- written by James Stanley, Senior Strategist

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