The Fall of the Mexican Peso

Last week, we discussed how Yen and Emerging Markets (such as the Mexican Peso) were being sold and currencies such as the US Dollar and the Euro were bought. Our reasoning was that Japan’s largest pension fund (GPIF) was selling Yen for reallocation. At the time, stock markets were not as fearful of the spread of the coronavirus as they have been over the last few days. As stock indices have been moving lower around the world, more fuel has been added to the fire for a weakening Mexican Peso.

At the time of last week’s writing, USD/MXN had just broken higher and closed at the top of the small blue channel within the larger green channel, near 18.85. Since there, the pair has sliced through resistance at the top of the larger green channel, the 200 Day Moving Average and the bottom trendline of the longer-term triangle and 50% retracement level from the August 29^th highs to the February 17^th lows. If stocks continue to move lower, dips will be bought. Next resistance is at the 61.8% Fibonacci retracement level of the same period near 19.60 and the top downward sloping trendline of the longer-term triangle near 19.95/20.00. Note that the RSI is in overbought territory, however, when markets are in strong trends, oscillators such as the RSI can become “more overbought”.

Source: Tradingview, FOREX.com

On a 240-minute timeframe, support is back at the 50% retracement level and the upward sloping trendline from the long-term triangle near 19.40. Below that is small horizontal support at 19.2620 and below that at the downward sloping green channel trendline near 19.05. The RSI is diverging in overbought territory, however as previously mentioned, oscillators can not be relied upon during strong trend.

Source: Tradingview, FOREX.com

Yesterday, we discussed how EUR/USD has been bid this week despite stock indices moving lower. The reasoning was due to the unwind of the carry trade. Today, there has been a new factor thrown into the Euro mix, which may help Euro pairs continue to move higher: the German government is considering a possible stimulus programme in case coronavirus epidemic hits German economy Hard (Handelsblatt). These factors have helped send EUR/MXN soaring over the past week.

Last week, price in EUR/MXN has just broken out of a falling wedge, which targeted 21.00.

Source: Tradingview, FOREX.com

On a daily timeframe, we can see that price has broken through the target level at 21.00 and then some! EUR/MXN has traded up to a high today near 21.44. Resistance above is at 21.50/21.58, which is a confluence of Fibonacci levels and Fibonacci extensions. Above there is horizontal resistance at 21.75 and finally the highs from August 26^th, 2019 at 22.46. There is near term support at the 200 Day moving average at 21.32, however below that the next level of support isn’t until the day’s lows and top of the falling wedge at 21.00!

Source: Tradingview, FOREX.com

As long as stocks are moving lower, the carry trade should continue to unwind. Add in German stimulus and official selling of Yen, and EUR/MXN and USD/MNX should remain bid. (With stocks off nearly 10% from highs and USD/JPY hanging around 110, it appears someone is selling Yen near these levels). However, be weary of a bounce in stocks as there is always the possibility of profit taking/stop loss run. Buyers will be looking for pullbacks to support to get long the peso pairs.

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% 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. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

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.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.