The recent USD/MXN decline has beenarrested in the last two weeks but the subsequent chart pattern is not giving a clear indication if this short-term move higher will continue or not. What looks likely is the recent series of lower highs and higher lows will collide soon and a breakout from this pattern is on the cards.
The Mexican Peso continues to be supported by a positive yield differential against the US dollar, although this continues to narrow. The Mexican key rate has been cut four times so far this year, from 7.25% to 5.50% and the Mexican central bank is likely to cut further as it continues its drive to boost the economy. Thursday’s Banco de Mexico meeting is expected to see the key rate cut by another 50bps to 5.0%, its lowest level since September 2016.
The pennant currently shown on the daily chart is suggesting that both bulls and bears are finding it difficult to take control of the market. The move back above the 20-dma (red line) suggest that short-term sentiment is positive but this narrative is being negated by a series of lower highs of the recent double-high between 22.91 and 22.95. Above here, both the 50-dma (blue line) at 22.96 and the 38.2% Fibonacci retracement level may act as additional resistance. The downside sees potential support at 22.153 (50% Fib), the 20-dma at 22.17 and a cluster of old lows down to 22.12. With lower highs and higher lows being made, either support or resistance will be tested soon.
USD/MXN DAILY PRICE CHART (DECEMBER 2019 – JUNE 24, 2020)
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