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USD/MXN – US Dollar Continues to Torch Mexican Peso as Dow Plunges

USD/MXN Highlights:

  • USD/MXN continues to fly on massive risk aversion
  • To remain bid until stocks stop declining

USD/MXN continues to fly on massive risk aversion

USD/MXN continued to burst higher yesterday, rising to nearly 23. Until financial markets find some calm, the bid is almost certain to stay in the Dollar versus emerging market currencies. At this point though it is becoming difficult to do anything with volatility so sporadic, and price knifing higher.

How much higher USD/MXN can go is hard to say. Coming into the year I was looking for a top-side breakout that would lead to around 24 (later in the year) based on the size of the wedge built since 2017. It’s only been a week since the breakout week, and we are almost there.

Not at all expected, like the entire situation surrounding the coronavirus and financial markets. The volatility is nearly unprecedented with S&P 500 volatility (VIX) closing yesterday over 76, a level only matched on a closing basis three times in 2008. With that said, we are likely nearing a climax in selling in stocks. (Check out this piece for more on historical volatility cycles.)

A strong bounce in stocks is to be expected once a low is found. This will likely give the Peso a strong shot in the arm as yield-seekers come back into the pair. The initial portion of a decline is likely to be fierce, from there some back-and-forth two-way trading might be the result for a while as the market catches its breath. This could create a fertile environment for those looking to flip around in.

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USD/MXN Daily Chart (straight up in the air)

USD/MXN daily chart

USD/MXN Chart by TradingView

USD/MXN Weekly Chart (how much higher can it go?)

USD/MXN weekly chart

USD/MXN Chart by TradingView

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—Written by Paul Robinson, Market Analyst

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