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USD/MXN – US Dollar vs Mexican Peso at Risk of Pullback on Market Rebound

USD/MXN Highlights:

  • USD/MXN rose sharply on coronavirus fears, stock market sell-off
  • Reversal of fortunes could be nearing, for now at least

USD/MXN rose sharply on coronavirus fears, stock market sell-off

With market fears running rampant on the coronavirus, stocks are undergoing a nasty sell-off while the Dollar is rallying against the high-yielding Mexican Peso. But with at least a near-term reprieve look set for stocks at some point on a panic low (even if short-term), that could change quickly.

The major indices (i.e. S&P 500 & Dow Jones) are down over 12% in the past week, which is at financial crisis type levels of extreme price action. With that said, panicked markets tend to bounce very violently, so chasing other markets (i.e. USD/MXN) that are rallying on stock weakness can be a dangerous game.

This doesn’t turn the outlook bearish for USD/MXN, though, even if it does experience the anticipated sharp downturn. It’s a discussion we have been having for a couple of months now – the idea that the macro-wedge pattern developing since 2017 that broke to the downside in December, might have been a false break, and that the real trade is still to come on a reversal back through the top of the pattern.

We are inching closer and closer to this being the case. With USD/MXN back inside the wedge, a rally beyond the upper trend-line of the pattern and over 20 is seen as leading to yet another large trend to the upside like the one seen prior to the January 2017 top.

For now, the short-term outlook is at risk of turning down on a shift in sentiment towards risky assets like stocks.

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USD/MXN Daily Chart (retracement before higher anticipated)

USD/MXN daily chart

USD/MXN Chart by TradingView

USD/MXN Weekly Chart (still could reverse long-term wedge break)

USD/MXN weekly chart

USD/MXN Chart by TradingView

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—Written by Paul Robinson, Market Analyst

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