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Mexican Peso Technical Forecast: Further Downside is Likely but Uncertainty Remains

USD/MXNTechnical Forecast: Bearish

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As Mexico reports more than 500 daily deaths from coronavirus, short-term focus remains on the outcome of the US presidential election. Despite there being no official president, Joe Biden seems more and more likely to take the White House as he places ahead of Donald Trump in key states like Georgia and Arizona.

As mentioned in a previous article, a democratic win would be positive for the Mexican Peso, but there is still a lot of uncertainty out there, especially as Trump threatens legal action and demands votes to be recounted in various states, which is likely to spark risk aversion in the coming week.

If we look at the daily chart, our bearish prediction for this past week has held through, despite a bullish spike on the day of the election as volatility was ramped up. The invalidation of a key support area between 21.04 and 20.83 is a reinforcement of the bearish cycle we have been witnessing in USD/MXN for the past couple of weeks, leading on from a wider bearish move after the coronavirus high of 25.77.

Moving averages continue to forecast further downside momentum, but an oversold stochastic could be an indication of a short-term low under a price-reversal, which plays into this notion of uncertainty keeping further downside limited. That said, there is still some space to consolidate Peso gains as USD/MXN heads towards its next key support, found at 20.26, which is the 76.4% Fibonacci retracement from the 18.56-25.77 surge.

USD/MXN Daily chart (31 January – 06 November 2020)

USDMXN Chart

The spike seen on Tuesday shows the importance of the descending triangle pattern, with the upper limit now coinciding with the psychological 22.00 handle. The culmination of this pattern sees USD/MXN heading lower as open interest increases, something which has already started to happen. But if we do end up seeing a price reversal, short-term gains will be limited to the 61.8% Fibonacci retracement at 21.32, followed by the upper limit of the triangle previously mentioned, from which point there are no more clear resistance areas on the daily chart.

USD/MXN Weekly chart (April 2017 – November 2020)

USDMXN Chart

Looking at the weekly chart, if the descending trendline is not able to contain a bullish run, the next area we draw attention to is the September highs at around 22.70, followed by the high in June at 23.22, although I do think we need an outside shock for the pair to be able to break the triangle on the upside. In regards to indicators on the weekly chart, the 20-day and 50-day moving averages are closing the gap, which indicates an increase in bearish pressure, although they are aligned in descending order, which is bullish. The MACD continues to show a negative number but it is shrinking, whilst the stochastic is currently in oversold territory, which would indicate that a price reversal could be coming.

— Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin