Mexican Peso Ready for a Rebound on Technical Take Profit
The Peso has had an excellent run against the US dollar over the past 3 weeks. However, there may be room for some short-term retracement.
The Peso has had an excellent run against the US dollar over the past 3 weeks. However, there may be room for some short-term retracement.
With the change in mood about just how quickly the Fed might start cutting rates, we’ve seen the US stock markets stumble and the dollar gain ground. And that has been the case for the USD/MXN which over yesterday and today’s sessions has had positive gains.
Household consumption (IOCP) showed further improvement over the last report, with an increase of 4.7%. The increase in economic activity wasn’t enough to keep the bull trend alive for the Peso, and the currency continued to weaken against the US dollar.
Next week will be a big week for the FX pair as the Fed will have its scheduled FOMC meeting as will Banxico. The Fed chair will give a press conference on Wednesday, while Banxico will issue a statement on their interest rate decision on Thursday.
The market expects both central banks to keep interest rates on hold. But most of the volatility should come from the Fed chair’s statement. The market will be looking to read into Governor Powell’s statements to determine just how close the pivot point might be.
Technical View
From the day chart below for USD/MXN, we can se how the market has bounced off a support area (black line) and I would expect the market to continue higher. The next resistance level is at the 16.79 level (red line).
I would expect this correction to continue given the strength of the support line (black line) and the level of the RSI. We would have to wait for today’s close, however, at these levels the RSI would close above 30.
A dip below and then above 30 typically signals a change in direction, at least a correction, not necessarily a change of the main trend. So, I believe the beginning of next week this FX pair will trend higher and flatten out as we get close to the Fed meeting.
Then there’s also the fact that many traders will be seeing this bounce and the dip below then above 30 of the RSI. Many traders that were short on the current bear leg of USD/MXN will be looking to take profits as we get closer to two high volatility events.
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