MEXICAN PESO OUTLOOK:
- The Mexican peso has gained floor in opposition to the U.S. dollar in current weeks, supported by a powerful restoration in threat urge for food
- Merchants ought to be cautious within the coming periods, as skinny liquidity can set off wild and erratic market strikes with out warning
- Beginning subsequent week, omicron, financial information, and financial coverage ought to as soon as once more be the main target of foreign exchange merchants’ consideration
After exploding greater in late November, USD/MXN has reversed course and began trending decrease in current weeks, weighed down by bullish sentiment and weaker demand for safe-haven positions. Throughout this time, threat belongings have soared, with the S&P 500 rising greater than 6% to file highs from its December low. Whereas not foolproof, when equities rise throughout the board, the EMFX tends to carry out properly in opposition to the US greenback as merchants turn into much less fearful in regards to the future and search higher-yielding bets.
For the subsequent few days, we should not have any main financial releases in both the US or Mexico, so international investor sentiment ought to proceed to be the primary catalyst for forex markets. That stated, ought to the Santa Claus rallyprogress additional on Wall Street, the Mexican peso might outshine the US greenback and finish 2021 on a excessive observe. The reverse can also be true: ought to sentiment bitter and shares start to dump aggressively, USD/MXN might pivot north and shoot greater within the blink of an eye fixed. Beginning subsequent week, when merchants return to their desks from the vacations, COVID-19 (omicron), financial information and financial coverage (Fed and Banxico) ought to be again in focus.
For merchants deciding to take positions this week, you will need to keep in mind one essential truth: buying and selling quantity might be very low heading into the top of the 12 months. Low liquidity can typically spark extreme volatility, amplifying downward or upward strikes. If caught on the fallacious aspect of the commerce, these erratic and exaggerated market swings can result in massive losses.
Turning our consideration to technical evaluation, USD/MXN has examined trendline and Fibonacci assist close to 20.55 at present, however has been unable to breach the world decisively. For bearish strain to choose up steam, we have to see a transfer under this flooring in the coming periods. If sellers handle to perform this feat, USD/MXN might retreat in the direction of 20.25, the November low, earlier than attacking the 20.10 area.
On the flip aspect, if patrons retake management of the market, the primary resistance to contemplate seems close to 20.97. If the pair climbs above this barrier, the worth might be on its strategy to retest the December 15swing excessive at 21.36.
USD/MXN TECHNICAL CHART
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—Written by Diego Colman, Contributor