USD/MXN Cascades Decrease, however Omicron Poses Upside Dangers


  • USD/MXN has began to appropriate decrease after its current upward explosion that took the value to a yearly excessive of ~22.15 final week
  • Pandemic fears, nonetheless, should still bias the U.S. dollar greater within the near-term
  • For the Mexican peso to get well meaningfully, traders will want readability on the omicron variant and information on the extremely mutated COVID-19 pressure should be optimistic

Most learn: S&P 500, Apple Stage Recovery After Powell, Omicron Fears

The Mexican peso has been on a curler coaster trip in current weeks amid rising U.S. Treasury yields, contagion from theTurkish Lira crisis, and considerations over the COVID-19 omicron variant. Towards this backdrop, the USD/MXN has exploded greater since mid-November, rising from ~20.50 to an annual excessive of ~22.15 final Friday, earlier than correcting decrease in direction of 21.28 on the time of writing.

From a elementary standpoint, the extreme MXN weak point appears overstretched, however it’s comprehensible. When uncertainty will increase, merchants are inclined to bail on EMFX rapidly to move for the exits looking for protected havens. While USD/MXN could transfer decrease and return under the 21.00 stage when the waters settle down and cooler heads prevail, it’s too early to foretell when that may occur, particularly because the pair’s implied volatility stays excessive amid pandemic angst and fragile sentiment.

For the Mexican peso to get well meaningfully, traders will want readability on the omicron variantthat’s showing in lots of elements of the world, however for probably the most half in Africa. Right now, little is thought in regards to the severity and transmissibility of the closely mutated virus pressure, however we must always discover out extra in coming weeks after scientists collect extra knowledge and full their epidemiological research.

If well being authorities conclude that omicron causes solely gentle illness and present vaccines stay efficient, we might see a broad-based EMFX aid rally, however features wouldn’t be extraordinary because the Fed financial coverage pivot will make sure the U.S. greenback stays enticing, particularly towards low yielders. The alternative can also be true; if omicron proves to be extra lethal than different strains and may defeat vaccines, EMFX might unload aggressively heading into 2022.

Pandemic considerations apart for a second, merchants must also give attention to home politics (Mexico) to grasp how the Mexican peso could carry out within the medium time period. That mentioned, President Lopez Obrador not too long ago withdrew the appointment of Finance Minister Arturo Herrera to steer Banxico and named Victoria Rodriguez as its subsequent head. Rodriguez is a little-known, left-leaning economist who many imagine can be extra loyal to the president and fewer unbiased in finishing up the financial institution’s mandate. As such, her affirmation could usher in an period decrease rates of interest and extra entrenched inflation, although it’s too quickly to cross judgement. In any case, a dovish financial coverage outlook within the face of elevated worth pressures might be deadly for the Mexican peso – look no additional than Turkey for reference.


USD/MXN has began to appropriate decrease after reaching a yrly excessive of ~22.15 final week, however for bearish momentum to speed up meaningfully, we would wish to see a sustained transfer under help at 21.11. If sellers handle to invalidate this ground, the subsequent stage of curiosity seems at 20.95, adopted by 20.45 (see each day chart).

On the flip facet, if patrons regain management of the market and USD/MXN pivots greater, technical resistance stands at 21.60, the March swing excessive. If the pair climbs above this barrier, worth might be on its technique to retest the 22.15 space within the near-term.


Mexican Peso Outlook: USD/MXN Cascades Lower, but Omicron Poses Upside Risks

USD/MXN chart prepared in TradingView


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—Written by Diego Colman, Contributor

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