Last Update: January 29th, 2021

The US Dollar has been gaining against the Mexican Peso for decades, one of the reasons for this being the increasing US imports from Mexico, which keep the MXN under pressure. The chart above shows that the USD/MXN was trading at around $ 2.50 in the early 1990s, while at some point during Q2 of this year, it was trading above $ 25, which means a 10-fold increase in three decades. The notable thing here has been that buyers haven’t had much opposition; the uptrend has been pretty much heading forward, with no major setbacks. The pressure has been on the upside all the time, with the usual surge every few years, the last time being during the first few months of this year. Since then, we have seen a retrace lower, but it seems like the retrace might have ended now, although it is not certain whether the uptrend is going to resume soon.     

 
Current USD/MXN Price: $

Recent Changes in the MXN Price

Mexico is a developing nation and the Mexican Peso is a risk currency. But, Mexico is directly on the US border, and given the huge size of the US economy, the impact on the Mexican economy is also immense. As a result, the Mexican Peso is sensitive to the US economy, as is the US Dollar. This means that when the USD is strong, such as during February and March, when traders were turning to the greenback as a global reserve currency, it had an impact on the Mexcan Peso. When the USD is weak, the MXN is not the currency that benefits the most. 

USD/MXN Live Chart

USD/MXN Price Prediction for the Next 5 Years

COVID-19 and Fundamentals  

The fundamentals have been quite solid for Mexico, as this emerging economy keeps growing, and exports to the US are also increasing constantly. Mexico has been the largest or the second largest US trade partner in total trade since 2019, at a total of $ 614.5 billion. Imports from the US amounted to $ 256.4 billion, while exports totaled $ 358.1 billion. This means that Mexico has a $ 100 billion surplus with the US, therefore it needs a strong USD, otherwise the revenue will decline in value. However, the fundamentals have skewed somewhat since the start of the coronavirus pandemic. The USD/MXN surged more than 7 cents during the initial panic, but it has been retreating lower since April. Although, as we mentioned, the retrace down has been much weaker than in other USD pairs. One of the reasons for the surge was the fear of what might happen to the emerging markets, since they don’t have as much to fall back on as the developed economies and governments have. The uncertainty is still high, hence the slow retreat during periods of USD weakness since April. So, overall the Mexican economy is at the mercy of the US economy, which will keep the trend bullish for a long time for this pair, despite the recent pullback.     

Inflation and Bank of Mexico Policy

Interest rates were above 8% in Mexico last year, but the Bank of Mexico started cutting them at the end of 2019, and this year, they slashed them drastically, as the global economy sank. As of September 2019, the main interest rate stands at 4.25%, while the FED has interest rates at 0.10%, as we have covered in our Economic Calendar. This difference in interest rates looks to be in favour of the Mexican Peso, but the higher rates in Mexico leave more room for the central bank to cut them further. Markets trade on expectations more than on the actual events, so this leaves the MXN vulnerable to more rate cuts from the Bank of Mexico. Some economists expect more cuts from them in the next few meetings, so the pullback lower in the USD/MXN should end soon. 

EUR/MXN Technical  Analysis – A Pullback Expected Before the Assault on All-Time Highs 

September’s candlestick points to a bullish reversal on the monthly chart

As we mentioned, the USD/MXN was trading between $ 2 and $ 3 in the early “90s, but it has been on a bullish trend since then, having gained around 1,000%. During this time, moving averages have been doing a good job of providing support during pullbacks lower, or during consolidations, on both the monthly and weekly charts. The smaller moving averages have been taking over this job when the trend has picked up pace, while larger MAs have provided support when pullbacks have been deeper. On the monthly chart above, we see that the price in USD/MXN has gone up in legs, with the last surge being in the first few months of this year. This pair was trading in a triangle from 2017, but it broke out early this year, after the price bounced off the 50 SMA (yellow) when the coronavirus broke out. It has retreated lower since April, but the retrace might have come to an end now. The 20 SMA (gray) is providing support on the monthly chart, while September’s candlestick closed as a doji, both of which point to a bullish reversal, since the retrace seems complete and the main trend remains bullish.

The retrace lower is not over yet on the weekly chart

On the weekly chart, we saw a jump of the 50 SMA in the last week of September, from below 21 to 22.60. But, the 20 SMA (gray) stopped the climb once again, providing resistance for the second time this year. The USD/MXN has reversed lower again, but the bearish move should end at some point, and the bullish trend will resume, as the monthly chart suggests. The reversal might happen in the area around 21, or at one of the moving averages below that, such as the 200 SMA (purple) which has been the ultimate support on the weekly chart. So, we will follow the latest bearish move lower, to see where it will end, so that we can open a long term buy forex trade.