Fundamental Analysis

USD/MXN Price Outlook Hints at Increased Spot Costs


Spot USDMXN appears set to renew its bullish ascent as elementary themes seem more likely to tilt again in favor of the US Greenback. The Mexican Peso has did not advance in opposition to the US Greenback with conviction regardless of broad weak spot within the dollar as of late – largely pushed by dovish Fed expectations. This could possibly be attributable to Mexico’s quickly declining economic system with outlook turning more and more pessimistic. Most prominently, Mexico GDP contracted again in Q1 and the nation’s GDP development estimates proceed to obtain downward revisions.

In truth, Mexico’s central financial institution Banxico reduce its 2019 GDP forecast again in Might whereas earlier this week the IMF lowered its personal GDP development forecast for 2019 Mexico GDP development a staggering zero.7% with the economic system now anticipated to develop lower than 1% this yr. Additionally, with the abrupt resignation of Mexico’s Finance Minister Carlos Urzua, one other layer of uncertainty is thrown into the combination. As such, bullish prospects for the Mexican Peso proceed to dissipate – even regardless of the USMCA commerce settlement’s possible ratification – as Mexico’s discouraging financial and political panorama look to weigh negatively on its forex.

Moreover, hypothesis continues to develop that Banxico will reduce rates of interest aggressively later this yr to assist assist its stumbling economic system whereas a possible credit score downgrade looms with Pemex – Mexico’s state-owned petroleum firm – in dire situations.

Shifting to the opposite half of the equation, the US Greenback might report an episode of resurgence if the Federal Reserve offers the market with upbeat outlook following the central financial institution’s first fee reduce in over a decade possible coming on the July FOMC assembly. The upcoming Q2 US GDP report might function a bellwether as to if or not the Fed will ease financial coverage additional or if it’s going to take a extra hawkish stance than the overzealous dovish bets presently priced by markets.

Additionally, the likelihood that that the long-awaiting USMCA deal fails to garner legislative backing can’t be discounted and poses extra of a risk to the Mexican Peso than it does the US Greenback. Moreover, there’s an eminent threat that US President Trump threatens to boost tariffs on Mexico to push his political agenda.


Spot USDMXN Rate Chart Technical Analysis

The technical outlook for spot USDMXN seems fairly enticing as effectively. Turning to the charts, technical assist supplied by the bullish trendline relationship again to late 2015 appears to offer the forex pair with a robust diploma of buoyancy. On the similar time, spot USDMXN draw back momentum has waned with the RSI exhibiting potential of trending larger. That stated, the 38.2% Fibonacci retracement of the forex pair’s 2017 buying and selling vary might function a headwind for spot USDMXN bulls across the 19.200 stage.


Spot USDMXN Price Chart Technical Analysis

Honing in on a more in-depth timeframe, assist from the bullish trendline turns into extra evident with spot USDMXN proven holding the sequence of upper lows again in April and once more earlier this month. Additionally, it could possibly be constructive for spot USDMXN worth motion to fill the conspicuous hole decrease printed early June. Whereas holding the 19.000 deal with will possible be key for bullish conviction to stay intact, the swing low in January 2019 close to 18.870 might function a extra acceptable cease loss for USDMXN longs. Trying again upward, the world round 19.475 could possibly be a doable topside goal.

– Written by Wealthy Dvorak, Junior Analyst for DailyFX

– Observe @RichDvorakFX on Twitter

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